Se qualcuno volesse tradurre il pezzo per il pubblico italiano farebbe cosa gradita

    Slate’s Matthew Yglesias writes columns about economics and finance.  Yglesias has been writing about Cyprus, and my critiques of the policies he has been proposing are the subject of this column.  The short version of the background one needs to understand the issues is that Cyprus is in a crisis and the EU is willing to bail out its collapsing banks only if Cyprus raises revenues.  The EU is unwilling to make the banks’ sophisticated creditors – the bondholders – take any losses.  The EU wanted the banks’ least sophisticated creditors – the depositors – to take losses, even if their deposits were small enough to be within the deposit insurance limit.  The reality, which the EU wishes to obscure by calling its proposal a tax, is that that the EU was insisting that depositors no longer be fully protected from loss by government deposit insurance.  The EU demand was made shortly after the EU and Cyprus’ government pledged that depositors under the insurance limit would suffer no losses.

    Cyprus’ government’s duplicity was prompted by its close ties to Russian oligarchs who deposit the funds they loot from Russia in the failing Cypriot banks.  Cyprus’ plan, therefore, imposed a hefty (6.6%) loss on (smaller) insured depositors in order to keep the percentage loss on huge depositors well in excess of the 100,000 euro insurance limit under 10 percent.

    The plan was terrible for Cyprus, terrible for insured depositors, and very dangerous to banks in the European periphery (because it could spark large withdrawals of insured and non-insured deposits from such banks).  The plan was also a political failure that enraged most Cypriots into opposing the deal.  Yglesias’ response to the plan was a March 18, 2013 column praising it: “Two Cheers for the Cyprus Bailout.”

    http://www.slate.com/articles/business/moneybox/2013/03/cyprus_depositor_haircuts_the_cypriot_bank_bailout_is_unfair_but_it_contains.html?wpisrc=newsletter_jcr:content

    The part that Yglesias liked best about the plan was causing depositors – including the fully insured smaller depositors – losses.  The single worst aspect of a terrible plan is what Yglesias cheered.  In fairness to Yglesias, he wrote that the losses imposed on the largest depositors should have been larger and the losses on the insured depositors smaller.  He did not, however, call for Cyprus and the EU not to breach their promises not to force losses on the insured depositors.  His position was that the magnitude of the betrayal of insured depositors be reduced (“It’s perhaps not possible to entirely spare middle-class savers, but they can be cut a much better deal than this.”)  Yglesias’ one sentence summary of his position reads:  “The plan to punish Cypriot bank depositors is hideously unfair, but it contains the germ of a great idea.”

    Yglesias unintentionally reveals that   this conclusion rests on a mistake of fact in this paragraph:“Ever since the spectacular collapse   of Lehman Brothers in 2008 and the ensuing financial crisis, regulators and   politicians have lived by a single rule: No losses for bank creditors.   The common thread of every bailout has been that banks pay off their debts in   full.”

    I agree that too many of the bailouts have   bailed out too many creditors, but Yglesias’ statement is incorrect because   it is overbroad.  Depositors have not   previously suffered losses, but banks have creditors other than depositors   and some of them have suffered losses in bailouts.

    Yglesias missed the obvious problem   that having to put a “hideously unfair” plan to a vote in parliament is   likely to lead to a rejection of the plan.    (At this juncture, the MPs that voted unanimously voted to reject the   plan.)  How unfair and self-destructive   (because of its terrible impact on depositors and banks in the periphery) a   plan was the deal that Yglesias claimed contained “the germ of a great   idea?”  It was such an unprincipled   betrayal that the German government denounced it.

    “German Finance Minister Wolfgang   Schaeuble, who blamed the idea of a confiscatory tax — and by implication,   the market fallout — on the unelected technocrats at the European Commission   and the European Central Bank.

    ‘We of course would have respected the   deposit insurance that guarantees accounts up to 100,000 but those who   opposed a bail-in — the Cypriot government, also the European Commission and   the ECB — they decided on this solution and now they have to explain it to   the Cypriot people,’ Schaeuble said.”

    http://www.bloomberg.com/news/2013-03-18/deauville-zombie-strikes-as-cyprus-tax-inflames-crisis.html

    The Germans are the über falken on making bank creditors   take losses in bank bailouts, so Schäuble’s denunciation of the deal   demonstrates conclusively that it is indefensible.  (Caveat: Schäuble was speaking for public   consumption.  There are indications   that he proposed during the negotiations to inflict a far higher percentage   loss on the uninsured depositors.)

    The Bloomberg reporters explained the broader concern about the deal.

    “Europe’s drive to rescue Cyprus risks   undermining a region-wide deposit guarantee plan, a key tenet in the battle   to contain the debt crisis, and casts doubt on the ability of the weakest   lenders to retain deposits.

    ‘This will be the death knell for an   EU Common Deposit Guarantee scheme,’ Roberto Henriques, an analyst at   JPMorgan Chase & Co. in London, wrote in a report to clients. ‘With this   action, one of the stabilizing instruments will have been completely   undermined in the current process and, in the future, we may see a very   strong reaction in deposit flows in the event that a banking sector may   experience stress.’

    ‘It is very clear in the [European]   commission text that savers who are covered by deposit guarantee schemes,   because they have deposited less that 100,000 euros, should be excluded from   the scope of any bail-in,’ said Vicky Ford, a U.K. Conservative member of the   European Parliament who is working on the law.”

    These are the same concerns I   expressed in my March 18, 2013 article criticizing the cynical and   self-destructive Cyprus deal.  Yglesias   and I wrote our articles with the same facts available to us.

    http://neweconomicperspectives.org/2013/03/the-eu-needs-a-bill-seidman-to-save-it-from-itself-cyprus-and-the-reverse-toaster-theory.html

    Yglesias, however, thinks the Cyprus   “reverse toaster” plan is “well-organized” and is essential to create   desirable incentives.

    “Thus far, a well-organized haircut   plan—in contrast to the chaotic Lehman bankruptcy—does not seem to be   provoking any dangerous financial contagion around the world. But if similar   plans are to be workable in countries less weak and tiny than Cyprus, they   have to be done in way that are less punitive to small depositors and put the   risk where it belongs—on wealthier, presumably more sophisticated, investors   who have the capacity to assess the soundness of different banks. As   problematic as the initial Cyprus proposal was, it is an important step back   to post-crisis normalcy.”

    Yglesias is not being ironic when he   calls the Cyprus deal “well-organized.”    He actually thinks it is well-organized, which is an idiosyncratic   view from a journalist.  Commentators   with experience and expertise have the opposite view.

    “‘It looks like a botched and   improvised job, and unprofessional – groping in the dark without much   consideration of what sort of signal it sends,’ said Alessandro Leipold, a   former International Monetary Fund official who is now chief economist at the   Lisbon Council research group in Brussels.

    ‘That’s no way to really run a   crisis.’”

    http://www.bloomberg.com/news/2013-03-18/deauville-zombie-strikes-as-cyprus-tax-inflames-crisis.html

    Note that Yglesias does not want to   pay depositors in full even when their accounts are below the insurance limit   and, by law and policy, are supposed to be paid in full.  Yglesias simply wants the loss inflicted in   the future on insured depositors to be “less punitive” (than 6.6%   losses).  He wants to inflict losses on   “small depositors” even though he (implicitly) acknowledges that they lack   “the capacity to assess the soundness of different banks.”

    We need to consider the negative   implications of Yglesias’ desired policy of inflicting losses on small   depositors for financial stability.    Yglesias simply assumes that his policy would improve bank safety by   creating private market discipline that would return banking to   “normalcy.”  Yglesias’ policy would create   a strong incentive for small depositors in EU periphery banks to move their   money to systemically dangerous institutions (SDIs) (the non-euphemism for   “too-big-to-fail” banks), particularly U.S. and U.K. SDIs.  That general incentive will be compounded   greatly whenever there is a report or a rumor that a Nation or a particular   bank is troubled.   In the EU   periphery, such reports or rumors are common.    These incentives can generate massive runs.  Not all runs are classic rapid runs.  Banks can lose billions of dollars in   deposits over the course of months.    Bank runs are a regulatory and economic nightmare.

    Yglesias is also far too confident   about the benefits of requiring large depositors to suffer losses in the   event of a bank failure.  He believes   that this will create sophisticated private market discipline based on his   assumption that large depositors “have the capacity to assess the soundness   of different banks.”  This has never   proven true.  There are studies that   find that riskier banks pay higher interest rates on both insured and   uninsured deposits, but that does not provide effective discipline.  Banks that are accounting control frauds   typically pay higher deposit interest rates, but they are never closed by   “sophisticated” depositors.  The   broader truth is that no private sector institution has shown the ability to   exercise effective private market discipline over fraudulent banksters.

    All theoclassical finance theory   predicts that subordinated debt holders will exercise the most effective   private market discipline.  The theory   is that their subordinated position means that they will frequently be wiped   out if a bank fails, that only sophisticated creditors purchase sub debt, and   that sub debt holders often buy such large amounts of bonds that it is highly   worthwhile for them to bear the investigative expenses essential to effective   private market discipline.  The reality   is that sub debt holders have never effectively disciplined a fraudulent   bank.  If sub debt holders consistently   fail, then there is no reason to believe that uninsured depositors will   succeed.  The record shows that they   routinely fail to prevent “control fraud.” The reality is that private market   discipline of financial control frauds is an oxymoron – the creditors fund   the frauds rather than disciplining them.    The failure is easy to understand.    Banks that follow the fraud “recipe” experience a “sure thing” – they   are mathematically guaranteed to report record profits in the near term   (Akerlof & Romer 1993: “Looting: The Economic Underworld of Bankruptcy   for Profit”).  Creditors break down the   walls of the bank CFO’s office in their eagerness to lend to banks reporting   record profits.

    When Yglesias pines for the return of   pre-2008 banking “normalcy” he betrays his devotion to theoclassical dogma   and his inability to learn from the crisis.    The pre-2008 “normalcy” was one that even conservative finance   scholars now concede was beset by “pervasive” control fraud at our “most reputable   banks.”

    “Asset Quality Misrepresentation by   Financial Intermediaries: Evidence from RMBS Market” by Tomasz Piskorski, et   al. (February 2013)

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2215422

    “Normalcy” was faux private market discipline funding the rapid growth of   fraudulently originated mortgages.    Those mortgages were then fraudulently sold to the secondary market   where the fraudulent mortgages provided the faux backing to fraudulently sold toxic mortgage   derivatives.  The frauds were so   massive and grew so rapidly that they hyper-inflated the financial bubbles in   many countries and drove the financial crisis and the Great Recession.  Yglesias promises that his policy proposals   will return us to that criminogenic “normalcy.”

    The only evidence of effective   discipline against financial control frauds came during the 1980s and   1990s.  That discipline was exercised   by federal S&L and banking regulators.

    Yglesias’   take on Cyprus as of the morning of March 19, 2013

    By Tuesday morning, Yglesias realized   that the “well-organized” Cyprus plan was dead on arrival.

    http://www.slate.com/blogs/moneybox/2013/03/19/cyprus_tries_to_renegotiate_bailout_terms.html?wpisrc=newsletter_jcr:content

    Yglesias’   plan to sell Cyprus to the Turks

    By Tuesday afternoon, Yglesias had   come up with his plan to save Cyprus by selling large portions of it to the   Turks.  Yglesias called his plan the   “Desperation Option.”

    http://www.slate.com/blogs/moneybox/2013/03/19/sell_northern_cyprus_the_way_out_of_debt_for_cyprus.html?wpisrc=newsletter_jcr:content

    Here’s Yglesias’ explanation of his   “too sensible” plan:  “here’s a plan   that’s much too sensible to be considered – sell diplomatic recognition of   Northern Cyprus’ secession to Turkey for the 5.8 billion euros that Cyprus   needs.”  If we are very lucky, Slate will have no Cypriot readers.

    What Yglesias’ proposal really proves   is that Nations that give up their sovereign currencies   give up a vital aspect of their sovereignty that can lead to humiliating   losses of the most fundamental attribute of sovereignty – our Nation is not   for sale at any price to anyone.

    William K. Black

    3/04/2013

    Categorie: Esteri

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