That's hogwash...what they are doing is theft, nothing less. What would you think if they had passed their first proposal of taking up to 40% off the top of everyone's account, whether it was insured or not?RoyGBiv wrote: Let's try to look at this logically, rationally...
In this country (USA) private accounts are generally backed by FDIC insurance, up to a specific amount.
Here are the current guidelines (summary): http://www.fdic.gov/deposit/deposits/dis/index.html" onclick="window.open(this.href);return false;
So... my wife and I are covered up to USD $500,000 on our accounts with each financial institution PLUS another USD $250,000 with the same financial institution on accounts that are not jointly held (FDIC insurance coverage is based on how the accounts are titled/held... If we have 3 joint accounts, the cap is $500K total, but if we have 1 joint account and 2 individual accounts, the effective cap is $1 million [$500K joint + $250K hers + $250K mine]). If I go to another bank I can apply the same logic and get another $1m in deposit insurance.
I had an opportunity to test this a few years ago when the banks started failing. I worked for a company that kept deposits in a "Sweep" account that was an umbrella account. Underneath, the bank managed cash in a way that outsourced the funds to a series of other banks, never keeping more than $100,000 (the FDIC limit at that time) in any one bank under any one titled account. When we looked at our statement from Chase, for example, we'd see $75,000 in RBS, $80,000 in Wells Fargo, etc. and the rolled up total equaled the balance on our statement.
We saw 3 of these banks seized by FDIC when banks started failing. We lost access to the cash in any one bank for 2, 3 or 4 days, until the seizure was settled and the ownership was rolled (WaMu became Chase, for example).
In the Eurozone, deposits are insured up to €100,000 (LINK). I'm not sure if that is per account or per depositor or per institution per depositor.
So.... as much as it sounds horrible that uninsured depositors will get dinged for up to 40% of their deposits, the depositors agreed to the risks when they failed to manage their money more soundly. They put their cash into Cypriat banks, insured to only €100,000 and failed to apply any financial management to reduce the risk.
Yes, I feel bad for them... but.. as I read more on what is actually happening I'm gradually coming around to a "Caveat Emptor" attitude about this.... People with lots of cash should be smart enough to manage that cash more carefully. So far, I don't see where any insurance promises were broken... Unlike our auto and financials bailouts where the foundations of US contract law were completely swept away.
What if you "deposited" your car in my garage for safe keeping and because I was deeply in debt, I decided sell your car as scrap metal to pay it down. I kept the tires and gave those back to you because that's all I had to "insure".
Those deposits are not their property. They do not get to decide to keep them in order to pay down the debt of the business. The business has income and expenses and it is the one who has the responsibility to "be smart enough to manage that cash more carefully."
With these kinds of options on the table, it's no wonder why some politicians are saying "we don't have a debt crisis."