The problems in Cyprus is the RBS story all over again.
A reputable bank, that makes its money, as all banks should do, by lending money and making money on interest on loans, goes for massive expansion, casino banking. Massive investment in Greek government bonds, which went pear shaped. There was also massive dodgy loans in Greece.
The employees of the bank were let us say encouraged to take out massive loans to buy shares in the bank’s shares that are now worthless. They were also discouraged to sell their shares only to learn once the bank had collapsed and their shares worthless, the very same people who had pressurised them into buying worthless shares, had sold their shares.
And who are the people with deposits over 100,000 euros? These were Cypriot businesses. One law firms estimates they have lost over 20 million euros. Many Cypriot businesses are now facing bankruptcy. Many, even if they have not lost money directly in the theft of money from accounts, have problems as there is now no means to processes credit card payments. Suppliers are demanding payment in cash, staff want payment in cash.
Laiki Bank was a reputable bank until Greeks bought a minority share, then a controlling share. That was when its troubles started, massive expansion, especially in Greece, billions in bad loans in Greece.
And what of the Russians? Many got wind of what was about to happen, and moved their money before the crash.
The real woes of Cyprus date from joining the EU and being forced to join the euro (all new entrants had no choice other than to adopt the euro). Overnight Cyprus lost control over its own economy.
Cyprus then went on a massive house building spree. In the area of Paralimni, Protaras and Ayia Napa there are rows and rows of near identical housing as far as the eye can see. Everyone jumped on the bandwagon, farmers found they were rich beyond belief if only they sold their land. The net result was Cyprus, in an act of crass stupidity, sold off its best farmland. Even before the crash many of these houses stood empty.
RBS was bailed out by the British taxpayer (though should have been allowed to go bust). In Iceland the banks were allowed to go bust. Cyprus should have followed the Icelandic example and let the broken banks go bust. Instead, Cyprus is going through a lot of pain, not to help Cyprus but to prop up the euro.
Banks that are too big to fail. And if they are allowed to fail they cause massive economic damage as we are now seeing in Cyprus.
In London there has been a failure to break up the banks. They have to be broken into smaller banks, they have to be split retail banking from casino banking.
The Greek takeover of Laiki, with corrupt politicians and regulators turning a blind eye, was nothing less than yet another Ponzi scheme. The ones left paying the bill, Cypriots, and especially bank employees (who not only have lost their jobs but invested on borrowed money in worthless bank shares), business people whose business now hang on a thread.
Cyprus still has a tourist industry, but even it has been going into meltdown. Here too, mistakes have been made. Cyprus once a quality holiday destination has gone down market into the gutter, attracting the bottom end of the tourist market, the drunks, quality hotels turning themselves into little more than wedding factories.
CyprusAid 2013, a free concert that took place in Nicosia. Those who attended were asked to bring free food for those worse off than themselves.
keithpp
Posts
