Posts Tagged ecb
Reports today put the Cyprus haircut at 60% of deposit balances in excess of €100,000. This is startling, as rumors were in the vicinity of 40%. What happened?
In reality, I have no idea. But this is a blog so I’m allowed to speculate. €100,000
“But Prof. Lima,” you say, “we thought Cyprus banks were closed. Where did those deposits vanish? And how did anyone get to them?”
Kids, if I knew the answer to that I’d be either retired or in jail. For sure I wouldn’t be writing this blog. But here’s a guess. Cypriot banks have, according to rumors, quite a bit of experience with various methods of moving funds around. And you can be sure that the Cypriot bankers were far more afraid of the Russian mafia than the European Central Bank. I’ll go out on a limb and speculate that the Russians will not be getting much of the haircut. A whole bunch of their deposit balances are no longer there. Leaving the suckers …, er, strike that, the regular customers holding the bag.
Which leads me to remind you of a simple fact. If there’s going to be a run on a bank, it’s best to be near the beginning of the line. Or have a high-speed internet connection directly into the bank’s computers.
If you’d like actual information, the New York Times has a pretty good article.
Are markets stupid? Or what? Today’s (July 26) worldwide rally was apparently sparked by this statement from Mario Draghi (from the Wall Street Journal):
‘[The European Central Bank is] “ready to do whatever it takes to preserve the euro,” which analysts say could include Spanish bond purchases and further stimulus.’
This statement is positively Krugman-esque. Serious economists know there are limits to monetary policy. A central bank can, at best, create money. (In the U.S. with our current excess reserves trap, the Fed’s ability to influence M1 is debatable at this point.) Mr. Draghi seems to think a central bank can solve all problems. He should learn some economics. We know that, like most institutions, there are limits to what monetary policy can accomplish.
It’s Greek to me. The Greek prime minister is on Twitter. I follow him. Usually his tweets are in Greek followed a few minutes later by the English translation. Saturday, there were 13 consecutive tweets in Greek, no translation. Suspicious.
The last 13 tweets by Greece’s pm have been exclusively in Greek. Normally he follows a Greek tweet with an English translation. Not now. What’s he trying to hide? I can read a little Greek, but this calls for crowdsourcing.