William K. Black: Spin Alert! Slate's Matthew Yglesias Gets It All Wrong on Cyprus

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New Economic Perspectives / By William K. Black

Spin Alert! Slate's Matthew Yglesias Gets It All Wrong on Cyprus
Yglesias betrays his foolish view of economics and banking in his take on Cyprus.

March 22, 2013 |


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.

Here's the short background on Cyprus: The country 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.” .............(more)

The complete piece is at: http://www.alternet.org/economy/spin-alert-slates-matthew-yglesias-gets-it-all-wrong-cyprus