The state as bank robber 223

Free marketeers should never let go of the proposition that taxation is theft.

However, as they are realists, they have also to concede – very grudgingly – that some money must be given to a government. As little as possible. Just enough for it to do what only a government can do: protect the country and the freedom of everyone in it.

So okay, governments may take a small percentage of earners’ incomes and label it “not stolen”.

But they always take more, and that’s morally abhorrent.

They make their immorality look honest by dressing it in laws.

Needless to say, the biggest thieves are the socialists. The more socialist a government is, the more it robs the nation. The fatter the government, the thinner the people.

Every now and then a government reveals its naked criminality. As now, for instance, in Cyprus, where the state is visibly extending its prehensile claw to snatch people’s money out of the banks. It calls the looting a tax.

This is from an article by Paul A. Rahe at Ricochet:

This weekend, the government of Greek Cyprus — under pressure from the European Union — negotiated a bailout that had as one of its provisions an assessment on the capital of those with deposits in the banks on Cyprus.

“An assessment on the capital” implies taxing, but the intention is to steal a portion of it.

Those with under 100,000 Euros in their accounts are slated to receive a 6.6% haircut while those with more than 100,000 Euros in their accounts will be docked 9.9%.

Rumor has it that the first proposal by the EU muggers in power was to seize 40%.

Whether the government can secure the approval of the Cypriot legislature for this unprecedented move remains unclear. There is talk of lowering the tax on deposits under 100,000 Euros to 3% and of raising the tax on larger deposits to 12.5%. But while the difference no doubt matters to ordinary Cypriots, whose savings are modest, and to the Russian oligarchs who have parked huge sums in the Cypriot banks, when viewed from a larger perspective, it matters not one whit. Indeed, at this point, it does not even matter whether the Cypriot government backs off from this plan altogether.

Banks are fiduciary institutions. They rely on trust; and, if there is a breach of trust, they are cooked. Individuals deposit money in banks instead of stuffing it in their mattresses because they believe that it will be safe there. Once they realize or even suspect that the money they put in the bank is anything but safe, they will take what is left of their money and run — and the bank will collapse. …

The Greeks will draw their own conclusions, as will the Spanish and the Italians and perhaps even the Irish and the French. No one who lives in a country that is in financial trouble and that may need emergency help from the European Union will entrust his loose change to a bank in his own country. The Euros in his mattress will retain their full value; those which he entrusts to the bank may, at least in part, be confiscated. …

That’s assuming the state won’t expropriate his Euro-stuffed mattress.

It would be hard to imagine what one could do to turn an ongoing crisis into a total catastrophe that would be more effective than the terms imposed by the European Union on Cyprus. That such a move is in contemplation is an indication of the degree to which the authorities in Brussels and Nicosia are in the grips of desperation.

And are foolish. And criminal.

Greek Cyprus got into in trouble in large part because of … Russian [mafia] deposits. The banks there had a great deal more money than they knew what to do with on the island, and so they loaned money to their less than creditworthy cousins in the republic of Greece. Now they have obligations that they cannot pay, and so they have turned to Brussels.

Had Greek Cyprus not joined the Euro, this problem would be relatively easy to solve. The government could simply devalue the currency and give the Cypriot banks’ Russian depositors a haircut in this time-honored fashion. That is what was done with considerable regularity in places such as Greece and Italy before they joined the Euro; and, if the Cypriots could do it now, it would have this virtue. The haircut imposed on their own citizens would — initially, at least — be less onerous. Abroad, the savings of the Cypriots would buy them less, to be sure. But, at home, for a while, it would buy them what it had before. Moreover, what the Cypriots produced at home would be more competitive in the world market — since its purchase would set the buyer back less — and as a tourist destination the island would be more attractive, since accommodations and food would for foreigners be cheaper than it had been. For a time, there might even be a boom.

I am not suggesting that devaluation is a joy nor that its long-term consequences are salutary. It isn’t a joy, and the consequences are not good. Inflation is apt to erupt, and inflation can all too easily become habitual. But a devaluation of the currency would not lead to a complete collapse of credit, which this tax on savings might well achieve.

Credit, you need to keep in mind, is what makes the world go round. Modern economies do not operate on cash. They operate on credit — which is to say, they rely on the very trust against which the European Union and the Greek Cypriot government have launched a devastating attack.

Bill Tatro points out that such robbery by the state could happen in America: 

To think those types of financial and economic events couldn’t happen here, hmmmmm…..In 1933, President Franklin Delano Roosevelt declared a national bank moratorium (he closed all banks.) Then, via Executive Order 6102, the government confiscated all gold and gold certificates, exchanging them for paper. Consequently, if you didn’t surrender your gold, you went to jail. The price of gold was set at $20.67 per ounce. Yet, within a year, the government reset the price to $35.00 per ounce, effectively fleecing the American public by 69%.

And speaking of rip-offs, just remember that … in 2009, President Barack Obama [when he bailed out GM] rejected the rule of law for GM senior and subordinated debtholders, thus relegating them to the back of the line. …

[And remember that] after extensive 2011 Congressional analysis failed to discover where the missing $1.6 billion of MF Global customer money had gone, J.P. Morgan was recently found to not have disclosed the risks taken and monies lost by the excess deposits as compared to the loans domiciled at J.P. Morgan. …

Following the “lost decade” of investment (2000-2009) which shed a very bright light on the failure of self-directed retirement accounts, former Treasury Secretary Tim Geithner discussed the possibility of nationalizing IRAs and 401ks [retirement savings accounts] …

So, regarding the current situation involving the third largest island in the Mediterranean Sea, can it happen right here in our country? …

It has happened, it is happening right now, and it will continue to happen.

An IBD editorial reports and comments:

Markets tumbled after Cyprus and the EU said they might tax private bank accounts to pay for a bailout. …

As bad as tumbling markets around the world are, they seem to be the only signal strong enough to catch the attention of Europe’s otherwise unaccountable bureaucrats who have long since learned to ignore street riots.

As stocks fell from Tokyo to New York, Europe’s leaders are scrambling to say they had nothing to do with the cause — the shutdown of all Cyprus banks and ATMs for at least three days and the expropriation of a large chunk of each now-captive account, as a “tax” to pay for Cyprus’ $13 billion EU bailout, Europe’s fifth.

Cyprus Prime Minister Nicos Anastasiades bitterly asserted he had been “blackmailed” by the EU and the International Monetary Fund to go along with the idea on Saturday, or there’d be no bailout. …

Aside from the fact that no fiscally responsible country should need a bailout and the roots of Cyprus’ financial crisis is based on long-term big-spending government and low-information voters, the bank shutdown nevertheless sets an ugly precedent rooted in the growing arrogance of EU power.

Until now, tax hikes and haircuts for bond-holders have been how Europe’s bailouts have been handled. …

Confiscating savings in banks and denying people access to their property without warning is something entirely different — and will do great damage to citizens’ willingness to save, invest and build wealth.

Oh sure, the rationale was that most of the depositors were shady foreigners, particularly from Russia, laundering money. But the photos of Cypriots banging on bank doors and protesting, much as the people of Argentina did when the same thing happened to them in 2002, tells a different story of human suffering.

The expropriation of the tiny country’s savings may have seemed like an easy test case for the EU because the population is small and some of the depositors are rich and unsympathetic, but the blowback will hit savings and investment — and future economic growth — all over Europe.

Worse still, it could catch on here.

Already Congressional Democrats are plotting the expropriation of Americans’ private 401(k) and IRA retirement savings accounts in favor of “a guaranteed income.”

If bank accounts can be casually expropriated in Cyprus to pay for big-spending governments and bailouts, there is no reason a nice slice of the $19 trillion in retirement accounts can’t get the same treatment.