The Wealth Tax

It's not enough to tax income anymore: in Europe, they're ready to take the next step. If you had money deposited in a bank in Cyprus, some of it just got taken away.
If less concerned about political correctness, one could say that what just happened was daylight robbery from savers to banks and the status quo. These same people may be even more shocked to learn that today's Cypriot "resolution" is merely the first of many such coercive interventions into personal wealth, first in Europe, and then everywhere else.
The attendant graphics suggest that "most" European countries will only need to take 11 to 30 percent private investments to stabilize themselves. Only a few will need more than that percentage of their citizens' private savings.

Well, it doesn't matter. Governments are entitled to take whatever they need, of course.


E Hines said...

The current "deal," agreed by the ECB, EC, and the IMF on the one hand and the Executive branch of the Cypriot government on the other, is a 9.9% tax on deposits over €100,000 ($131,000) and a 6.75% tax on all smaller deposits. It's also represented as a one-time tax.

It's not yet a done deal. For lots of reasons, perhaps only one of which is that the Cypriot Parliament has more integrity than the rest of the Cypriot government, a vote on the bill that would authorize the deal, scheduled for yesterday, has been postponed until tomorrow--that Parliament wasn't guaranteed to pass the bill.

It remains a work in progress, though: Finance Minister Serris, put a freeze in place on electronic transfers:

We have taken immediate measures so that electronic transfers cannot take effect before banks reopen on Tuesday.

Also, cash withdrawals at the ATMs have been limited to €400 ($520). The ATMs are out of money and not being replenished.

Willy Sutton couldn't have done it better.

On a related note, are the interest rates or investment rates of return that the Cypriot banks are paying on those deposits more or less than those taxes? You get three guesses, and the first two don't count. For how long will those depositors leave their remaining money in those banks? Again, three guesses, and the first two don't count.

This will need to go global promptly, or a lot of banks--including legitimate (i.e., competently run ones)--are going to get hurt by depositor and investor runs. Or it needs to be quashed now.

Eric Hines

MikeD said...

Governments are entitled to take whatever they need, of course.

I understand the sarcasm, certainly, but even so I feel the need to say:
Governments are not entitled to take like this, but of course, dictatorships are.

To command a bank (a private, non-government owned enterprise) to hand over money from its investors/customers is nothing more than bald-faced theft. Eric is right, this kind of move could put the very concept of banks out of business. For who would want to put their money there knowing that at any time, the government could seize their assets?

Grim said...

Well, not dictatorships only, but any sort of tyranny. As Aristotle reminds us, any form of government can devolve into tyranny (or even start out that way). A dictatorship is the tyranny that comes from the healthy form of government called a monarchy; an autocracy from an aristocracy; and the tyranny that pertains to rule by the many Aristotle calls "democracy," with constitutionalism being the healthy form. You can see where we are from that.

An important question might be just what form of tyranny Cyprus is experiencing. It doesn't seem to be democratic tyranny, in spite of the fact that formerly democratic institutions are involved. This is being imposed upon them by a small elite from outside, and it is taking the form of corruption proper to autocracy rather than democracy. If it were democratic tyranny, the government might seize money to distribute to the many. Here, it is seizing from the many in order to stabilize the government's pet banks.

When we see people advocating for this as if it were good policy, then, what they are arguing for is rule by a self-interested elite. It is not merely the devolution of constitutionalism into democratic tyranny, but the replacement of rule-by-the-many with rule-by-the-few. It's a very severe change in the way Cypriots' lives have been ordered. I wonder how they will react to it.

E Hines said...

A couple of things. First, and minorly, the vote has been put off until Tuesday afternoon (Cyprus time), and the bank "holiday" seems to have been extended to Wednesday. Unfortunately, the wrong thing is being debated: the argument is beginning to coalesce around how to allocate the "tax " across deposit sizes.

Second, there's an undertext that's unique to the Cypriot case. It doesn't alter the principle, but it contaminates the solution. For a bit over a year, GAZPROM has been pushing Cyprus to let them (GAZPROM) "rebuild" the Cyprus banking system in return for GAZPROM being handed responsibility for developing and managing Cyprus' oil and gas assets in the eastern Med. Recently, Cyprus rejected that kind offer. This sent Putin through the roof, with a number of veiled threats centering on Cyprus' harm to all those innocent Russian depositors in the Cyprus banks.

Third, [Government] is seizing from the many in order to stabilize the government's pet banks. This isn't new, and it's not unique to the EU's treatment of Cypress, although it's most overt here. The EU, and the euro zone government subset, both separately and in concert with the EU have been doing this since the Panic of 2008. And the individual governments, or most of them, have been seizing from the many for far longer. It's what the modern conceptualization of socialism does.

Eric Hines

Eric Blair said...

Meh, it's not really socialism, it's cronyism. Call it crony-socialism, crony-capitalism, or whatever, but it's still the same.

It will be interesting to see what the cops do. After all, they're getting a haircut too.

Texan99 said...

As they're saying over at Ace, "If you like your money, you can keep some of it. Maybe."