Politics (formerly Election 2012)

[Fridmarr]

First, about precedents...Everything, without any exception ever, that government does sets a precedent. That doesn't mean that precedent can't be overturned by either a superseding government body's ruling, or by the same body making new laws to specifically overturn it.  Until such time however, it seems that this body considers within its power the ability "tax" anyone in the EU with money in a bank if they feel it is warranted.
 
The odd thing here, since as you say, Cyprus is insignificant, then why bother with such a line crossing tactic?  If that's the answer when the situation is insignificant, I'd hate to see the solution when the situation is more dire.
 
As far as the alleged corruption and interest rates etc...Is that really relevant?  I mean shouldn't that be handled through the legislative regulatory process?  The given solution doesn't even seem to address that anyhow, but rather use it as justification, for which it hopelessly fails.  I mean if I put my money in a bank that is FDIC insured here, and that bank goes tits up because of malfeasance, why shouldn't the FDIC make me whole again?  Isn't it the FDIC's job to make sure banks whom they insure are meeting the standards for which they are willing to credit depositors should the bank not be able too?  For the FDIC to say, well that bank system was corrupt, when they have chosen to insure it, just means that they were derelict in their duties.
 
The same applies here, if the governing bodies didn't like the way Cyprus was running their banking systems there were legislative and regulatory solutions available, which is much preferable to these sort of closed door non representative sorts of punishments, which doesn't even address the culprits.

[Koatanga]

Why is it that banks that should fail get bailed out by governments and continue to operate? If the government has to bail out a bank, it should take possession of the bank, pay out any deposits, sell off the bank's assets, and close down the bank.

Maybe if the penalty for mismanaging a bank was the loss of the business instead of a big fat bailout cheque, stockholders might value sound management and a slimmer bottom line.

[Fridmarr]

The government answer to that has been "too big too fail". And they did let many banks fail. Washington mutual was one of the more infamous. I tend to agree though, bailing out all of these companies that were doing stupid things may not have been the wisest choice in the long run, but it's an amazing amount of political cover that is hard to resist for politicians.

[Paxen]

I favor nationalizing banks that are "too big to fail" and yet fail. The investors would have lost their money anyway, and investing in anything is never a sure thing. Then the government can sell it off again when/if the bank gets back in shape, recouping the taxpayers' money that was spent on it and perhaps even turning a profit.

[Fridmarr]

Define investor.

[Paxen]

Define investor.

All right, bad word. Shareholders? As in, the owners of the bank?

[Nooska]

Why is it that banks that should fail get bailed out by governments and continue to operate? If the government has to bail out a bank, it should take possession of the bank, pay out any deposits, sell off the bank's assets, and close down the bank.

Maybe if the penalty for mismanaging a bank was the loss of the business instead of a big fat bailout cheque, stockholders might value sound management and a slimmer bottom line.

Thats exactly how it works in Denmark. Well we did have some "bailout" packages, but that was for the entire bank sector. We have the governtment "company" called "Financial Stability" which takes over a bank that fails (unless another bank takes it over and merges it into its own). The depositors are the guaranteed deposits up to 100k €, and anyone in debt to the bank simply owe their money to the government. Financial Stability then sells off any healthy parts of the business.
The investors / stockholders / creditors of the bank that aren't depositors are left with nothing to show.

It works, quite well, witha great depositor security.
One group of depositors are exempt from the 100k € limit on deposits (last I heard) - municipalities and region bodies (ie the lower levels of government) - they have full security (imaginge if a municipality unning schools etc or the region running the hospitals suddenly didn't have their money because of a bank failing - right no healthcare, no paycheques, no nothing till a new tax is levied).

[Fridmarr]

That's how it works here too for 99.9% of banks, the exception being the "too big too fail" banks. Usually, it's because they are large conglomerates with reach far beyond just banking, and shutting them down would have significant negative repercussions, at least according to some government officials. Others think that banks should not be allowed to reach that state, they should be broken up if they reach that size.

[Paxen]

If that had been how it worked, the US government would now have been heavily invested in the banking sector.

[Fridmarr]

What do you mean? There's been some 400 or so banks that have failed since the crisis.


http://www.fdic.gov/bank/individual/fai ... klist.html

[Paxen]

And are they now operating as government-owned banks?

[Fridmarr]

No they were sold/merged into another bank, just as Nooska mentioned.

[Paxen]

Hmm, I may have misunderstood him. In Norway, around 1990 during that crisis, the government took over a lot of banks that were on the brink of failure. After they got back on their feet, they were sold off, sometimes even with profit.

Just figured that would be how the danes did it as well.

[Klaudandus]

This made me lol
http://thinkprogress.org/justice/2013/0 ... ch-kansas/

[Nooska]

I don't rightly remember what came before Financial Stability (which was founded in 2008) but I remember something similar to that previously.

In all fairness there is some criticism of the company for having too large expenditures and too little oversight, but from my chair those are political problems only.