Paul Krugman has written about Cyprus in a refreshing way, saying:
A couple of years ago, the journalist Nicholas Shaxson published a fascinating, chilling book titled “Treasure Islands,” which explained how international tax havens – which are also, as the author pointed out, “secrecy jurisdictions” where many rules don't apply – undermine economies around the world. Not only do they bleed revenues from cash-strapped governments and enable corruption; they distort the flow of capital, helping to feed ever-bigger financial crises.
One question Mr. Shaxson didn't get into much, however, is what happens when a secrecy jurisdiction itself goes bust. That's the story of Cyprus right now. And whatever the outcome for Cyprus itself (hint: it's not likely to be happy), the Cyprus mess shows just how unreformed the world banking system remains, almost five years after the global financial crisis began.
Precisely so. That is the problem. Despite the promise of the London G20 in April 2009 nothing of substance has been done about secrecy jurisdictions /tax havens, and that is what Cyprus is. And as Krugman notes the problem is exacerbated by Cyprus itself:
But it also reflects Cyprus's own reluctance to accept the end of its money-laundering business; its leaders are still trying to limit losses to foreign depositors in the vain hope that business as usual can resume, and they were so anxious to protect the big money that they tried to limit foreigners' losses by expropriating small domestic depositors. As it turned out, however, ordinary Cypriots were outraged, the plan was rejected, and, at this point, nobody knows what will happen.
And the Cypriots were right to do that, but to conclude:
But step back for a minute and consider the incredible fact that tax havens like Cyprus, the Cayman Islands, and many more are still operating pretty much the same way that they did before the global financial crisis. Everyone has seen the damage that runaway bankers can inflict, yet much of the world's financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we've put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.
So don't cry for Cyprus; cry for all of us, living in a world whose leaders seem determined not to learn from disaster.
As some of use have been saying for a long time.
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Ellen Brown’s article here highlights the need for banking reform regarding deposits, which has become more important since the crisis in Cyprus.
That is that when you deposit money in a bank, it is no longer yours, you are merely a creditor of the bank. This is very worrying. It suggests that “creditors” as well as shareholders can be liable for bailouts when government cannot pay them.
It is bad enough when our taxes underpin banks, but deposits as well? This is just a transfer of wealth from the poor to the rich.
http://www.truthdig.com/report/item/a_safe_and_a_shotgun_or_publicly-owned_banks_the_battle_of_cyprus_20130322/
Sandra
while it is easy to sympathise in general terms, in the specific term depositors in Cyprus banks enjoyed absurdly high interest rates without tax deduction. They did so because Cyprus marketed itself as an “offshore tax haven” while, perversely, remaining part of the Eurozone.
The Cypriot banks ran a model that was, to put it kindly, uneconomic & which ran into the sand as soon as their own, equally uneconomic Greek bonds ran out.
The idea, currently being hawked about by Cypriot politicians who are, themselves, mostly bank employees or shareholders that anyone else should share the burden is as morally despicable as it is economically illiterate.
The Cypriot banks are @@@@ed & all their depositors deserve & require a very severe haircut with the larger ones getting the greater trim.
Any other “solution” is nonsensical.
I think that surely we must distinguish between the small poor Cypriot depositor and the wealthy Russian Oligarchs who hide billions in Cyprus at the behest of corrupt politicians. The wealthy money launderers should pay, not the ordinary citizens. This could lead to a lack of confidence in banks across Europe -London is a tax haven.
If the Cypriot banks were not taxing the deposits I cannot see how the poor ordinary citizens in Cyprus could have benefited, or should be liable, as most of the money is owned offshore.
“I think that surely we must distinguish between the small poor Cypriot depositor and the wealthy Russian Oligarchs who hide billions in Cyprus at the behest of corrupt politicians. The wealthy money launderers should pay, not the ordinary citizens.”
Well the EU sought to achieve that & the Cypriot Govt over-ruled them. It is to be hoped that the finally agreed plan will be closer to the EU’s than the Cypriot’s.
“This could lead to a lack of confidence in banks across Europe -London is a tax haven.”
Absolutely true. I, personally, would love to see what would happen if all the dirty money poured out of London.
“If the Cypriot banks were not taxing the deposits I cannot see how the poor ordinary citizens in Cyprus could have benefited, or should be liable, as most of the money is owned offshore.”
If the ‘haircut’ is restricted to deposits over €100k, as the EU wanted, then poor ordinary citizens should be OK.
Krugman was also urging all and sundry to be more like France a few years ago. Blind squirrels, nuts, all that jazz…..
Mr Chas
Surely you must have seen Scarborough’s utter demolition of whatever was left of Krugman’s credibility.
A Nobel Prize laureate annihilated by a simple, but well prepared ‘hack’. Truly one for generations to savor.
http://www.charlierose.com/view/interview/12802
In your dreams
As has been said elsewhere, there are two versions of Paul Krugman:
1 – The rightfully awarded economist who writes good books, has good research, etc
2 – The rightfully lambasted political/economic pundit who is often times wrong and micro-thin-skinned when it comes to disagreements
All economists are wrong sometimes, usually when they talk about the future
So are you
So your observation contributes nothing to debate
All you offer it trite observation
Krugman takes risk
Please don’t waste my time again
MRubio
Here are some comments about the debate you refer to you. They seem to paint a different picture?
Sorry Richard to take up so much space. I feel it is important to include them, because I think it shows to readers of your blog that “someone” is just another right winger twisting the truth.
Beej 03/22/2013 11:45 AM Report
Many comments have already pointed out the strangeness of this program. Mr. Rose lost control at times, and Mr. Scarborough bullied Mr. Krugman needlessly and pointlessly. Mr. Scarborough came to this session with only one piece of preparation (probably not even dug up by him) – a totally irrelevant quote, out of context, from something written by Mr. Krugman 15 years ago, when we had a totally different fiscal outlook.
Mr. Krugman effectively stated his thinking about what we need to do today. But when Mr. Rose asked Mr. Scarborough, simply and directly, what he thought we should be doing today, his response was that the President needs to meet with Congressional leaders to discuss options. In other words, Mr. Scarborough knows how to attack, but does not have a single thought about policies in spite of the endless conversations he has had on his own show about the actions Washington should take. His response only confirmed what we probably knew. He mouths “conservative” principals like a true politician on the attack (totally out of place in this venue), without any discernible understanding of complex economic issues.
Mr. Krugman has been a strong advocate of well-documented and supported economic policies. Mr. Scarborough likes to hear himself talk, but presents no more than sheepish grins when asked to state his own considered opinions. At this point of the program I did something I rarely do. I turned off the Charlie Rose Show.
gwoodruf 03/13/2013 02:07 AM Report
“Joe Scarborough was given free rein, while Paul Krugman was repeatedly stopped (often in a rude way) by Charlie from completing a thought.”
Joe really never said anything worth interrupting of following up on.
It’s as if Joe Scarborough had never seen the Charlie Rose show and didn’t understand the normal quality of the show and the viewership. It’s hard for me to believe that Joe could come to a debate like that thinking all he had to do was rely on this strange “This is what you said in 2006” followed by Paul Krugman explaining the difference and Joe staring blankly.
michael54 03/12/2013 06:46 AM Report
My thanks to Charlie Rose for arranging and hosting this debate between two prominent people on this issue. It was a notable chance to see the contrast between them.
Joe: “I’m looking at your words and want to know what changed.”
Krugman had already explained multiple times what had changed.
Krugman is an analytical researcher. Joe seems to be a slippery agent for the banksters.
I would have liked to hear some discussion of the gargantuan, multi-faceted rip-off of the American economy by the banking-military sector during the Bush-Cheney administration. Let’s put the perpetrators in jail and put legal blocks in place to prevent such future plundering. THEN look at the country’s economic situation.
For those of us for whom everything, or almost everything, is chaos, confusion and uncertainty, short or long term, a lot of thinking about the tax havens etc. is relatively static. What is actually happening around the back offices is that the digital figures are pinging around the world’s computers in ways that are almost random but impossible to trace or usually to identify. Given that experts suggests that those engaged in various forms of cyber crime and the rest are normally not just one step but several ahead of regulators, governments etc, how to deal with it is is way beyond difficult. At least with 18th Century pirates there was always a chance of blowing them out of the water. These days if you do that the knock on effects may well be that you go down as well. In the Bronze Age was Cyprus perhaps the home to the Sea Peoples who were so disruptive to the ancient civilisations?
I wonder whether Cyprus economic difficulties represent the proverbial “butterfly flapping its wings that causes a hurricane somewhere else”!
I think that you are right Theremustbeanotherway says. Michael Hudson has always called Greece ‘the experiment’ as to how far the neolib/neofeudalists can push a nation into ‘serfdom’. It now seems that Cyprus has been picked out to trial run this new policy. However, plans are afoot to implement in the US, UK, NZ, Spain and probably globally.
http://www.economicsfortherestofus1.blogspot.ca/2013/03/the-usa-uk-and-eu-are-planning-to-take.html
http://www.golemxiv.co.uk/2013/03/plunderball-the-new-euro-banking-game/
Rather depressingly, another prominent MMTer, Professor Bill Mitchell has always referred to the UK as ‘the experiment’ in full-blown neoclassical economics.
The big thing to take from Cyprus is that states can, if they want, make hyper-rich criminals pay their fair share to society.