Tags: Cyrpus | bank | Forbes | disastrous

Steve Forbes: Cyprus Bank Levy Is ‘Crazy’ and ‘Destructive’

By Michelle Smith   |   Wednesday, 20 Mar 2013 07:58 AM

Imposing a levy on bank deposits as a condition for a bailout is “crazy” and “destructive,” writes Steve Forbes, chairman and editor-in-chief of Forbes Media, warning that this idea could be disastrous for everyone.

Cyprus is seeking 10 billion euros ($12.9 billions) for fiscal needs, bank restructuring and to provide support for the nation's economy, according to a statement from the Cypriot finance ministry.

The nation actually needs a bailout of 17 billion euros CNN says the Financial Times revealed. But a group of potential creditor nations have proposed a one-time levy on bank deposits to reduce the nation's need for outside funding.

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Essentially what was proposed was to take a certain percentage of money from the accounts of people who have made deposits in good faith, a move that many have likened to stealing.

Forbes noted that the seizing of peoples' bank deposits is the kind of thing one would expect from "Argentina or other kleptocractic third-world governments."

The germane fact is that it was Western Europe, supposedly a strong believer in the rule of law, that engaged in this Hugo Chavez-like move, he writes.

Forbes warns that having such an idea come from Europe is disastrous in part because it affects the thoughts of people elsewhere. If Europeans leaders could come up with such an idea, an American leader, such as President Barack Obama, could propose a measure such as raiding 401(k)s to help fund Social Security, says Forbes. And in a panic Congress could jump on board.

Furthermore, Forbes says this bank levy business guarantees that there will be disastrous runs on banks and money market funds when we have another financial crisis. And he is sure that another crisis lies ahead because authorities really don't know what they are doing on the economic front, he added.

Don't think the US would be immune in a crisis, Forbes said. When fears rise, people clutch cash first as trust and faith in authority melts away.

Underscoring the critics arguments that this is an ill-conceived plan is the fact that the bank levy was proposed on account holders regardless of citizenship. And according to CNN Money, about a third of the cash in the Cypriot banking sector belongs to Russians.

This prompted Russian president Vladimir Putin to describe the bank levy in a similar fashion as Forbes. CNN says Putin called it an “unfair, unprofessional and dangerous step.”

Lawmakers in the Mediterranean nation rejected the bailout plan, throwing into limbo a rescue package designed to keep it in the euro.

Perhaps ways will be found to prevent the mishandled Cyprus situation from triggering a full-blown crisis for now. But only for now, he wrote.

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