Cyprus!! Meh…

Well there’s a bit a lot of news surrounding Cyprus and its given markets, especially Thailand a reason to finally sell off a bit. We’ve scoured the net and found a few interesting articles that may be of interest explaining whats going on there, the problem and even a potential solution.

It is a levy of 9.9 per cent on deposits above €100k, but also of 6.7 per cent on those holding amounts below €100k down to zero.

The move by the Eurogroup will also hit resident and nonresident depositors alike. We see no sign of a floor to protect the savings of the average Limassol widow or Larnaca house-buyer. Carsten Schneider, a German politician of the SPD, hooted this month about burning “Russian black money”. Rather less about the little people. What a socialist.

Source: FT

Whatever the rationale, it is a mistake for three reasons. The first error is to reawaken contagion risk elsewhere in the euro zone. Depositors have come through the financial crisis largely unscathed. Now they have been bailed in, some of them in breach of an explicit promise that they can be sure of getting their money back even if a bank goes belly-up.

Source: The Economist

First, leave all deposits under €100,000 untouched. Hitting those deposits was by far the biggest mistake of the Cyprus plan as originally envisaged, and everybody would be extremely happy if guaranteed depositors could be kept whole.

Second, term out everybody else by five years, or ten if they prefer.

That’s it! That’s the whole plan, and it’s kinda genius. If you have bank deposits of more than €100,000, they will be converted into bank CDs, with a maturity of either five years or 10 years — your choice. If you pick the longer maturity, then your CD will be secured by future Cypriot gas revenues, which could amount to hundreds of billions of dollars.

Source: Reuters

However in the end its just Cyprus, please, the financial media and news outlets will milk this story as much as possible but in the end it will be an afterthought within 3 months.

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