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Author Topic: Experts : Expect a continent wide bank run  (Read 1476 times)
the founder
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March 18, 2013, 05:25:00 PM
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Sir Mervyn King once said it was not rational to start a bank run but rational to participate in one once it has started. The governor of the Bank of England was right, of course. On Saturday morning, the finance ministers of the eurozone may well have started a bank run.

http://www.ft.com/cms/s/0/b501c302-8cea-11e2-aed2-00144feabdc0.html

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This would never happen to bitcoin.

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March 18, 2013, 06:08:40 PM
 #2

Sir Mervyn King once said it was not rational to start a bank run but rational to participate in one once it has started. The governor of the Bank of England was right, of course. On Saturday morning, the finance ministers of the eurozone may well have started a bank run.

http://www.ft.com/cms/s/0/b501c302-8cea-11e2-aed2-00144feabdc0.html

Founders Note:
This would never happen to bitcoin.


Got a non-paywall version?  I know you can register for free, but kind of annoying that you don't just see the article.
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March 18, 2013, 06:10:43 PM
 #3

That would be epic
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March 18, 2013, 06:20:51 PM
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Founders Note:
This would never happen to bitcoin.

I disagree!

I mean, certainly, people with checking accounts wouldn't be affected, because with Bitcoin you don't need a checking account. But savings accounts? Earning interest? That stuff still requires putting your BTC on deposit with an organization making loans and investments, and such an organization can go insolvent as easily in BTC as they can in your favorite flavor of fiat. And unlike with fiat, there's no remitter of last resort like the EU has (which can theoretically print money to cover government-insured deposits if all else fails).

So, it may be emblematic of the ongoing failures of the banking system, but it's not something that Bitcoin really solves.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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March 18, 2013, 06:27:31 PM
 #5

...
So, it may be emblematic of the ongoing failures of the banking system, but it's not something that Bitcoin really solves.


Yes, with bitcoin you can still do fractional reserve....but not to the same degree system-wide as with fiat. Things shouldn't lever as far with bitcoin as the monetary base, since there's no way to backstop it (print more) if/when failures due to leverage occur. Thus, depositors would get freaked out at lower leverage levels, preventing these huge bubbles from getting created.

So in a bitcoin world, Cyprus' banking system wouldn't've gotten to the point where it needed the bailout; thus there would've been no talk of deposit confiscation.

#bitcoinUsersNotAffected

Bitcoin is the first monetary system to credibly offer perfect information to all economic participants.
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March 18, 2013, 06:32:51 PM
 #6

I'm pretty sure the following is it in its entirety. Apologies for quoting the whole thing, but not sure how long it will remain available since it's sourced from a paid entity, although it's located on a Yahoo! site.

In avoiding a Greece repeat, the Cypriot bailout is setting a dangerous precedent

Quote
Although Cyprus may be a tiny country and an offshore Russian tax haven, the implications for the rest of the euro area of the plan to bail out its banks by imposing a levy on depositors are very real.

It all has to do with how Greece’s bailout was handled last year. In February 2012, EU leaders and the IMF agreed to allow Greece a “managed default,” giving it more aid only as long as private investors agreed to take a 68.5% writedown on their holdings of Greek debt. But bonds bought by the public sector—European countries, the European Central Bank (ECB), and the IMF, collectively known as the “troika”—would have to be honored, even if they were purchased at a price less than face value. These organizations will not only be repaid, they actually stand to make money on some of those investments.

Analysts generally agree this wasn’t handled well. It set an uneasy precedent, signaling that private sector investors would bear the full brunt of any default wherever the troika got involved in buying sovereign debt. EU leaders recognized that this was a bad model, and was hurting other countries on aid programs, so they vowed that Greece’s situation was “unique” and would not be repeated elsewhere.

EU leaders have made a concerted effort to do things differently this time. They’re not forcing Cyprus to default. They’re also dealing with Cypriot banks, not holders of Cypriot government debt. Instead, they’re forcing all private depositors—both rich and poor—in the country’s banks to pay a one-time tax that would bring down the country’s debt level. (Cyprus’s parliament may try to soften the blow to smaller depositors when it meets tomorrow.)

But trying to get away from the Greek precedent, European leaders are doing something that might be equally as bad: risking bank runs. Essentially, it’s like getting rid of deposit insurance; if there’s any possibility that your money won’t be there when you want it, why put it in a bank that’s subject to any risk? The FT’s Wolfgang Münchau points out that hitting small-time investors in Cyprus has collateral effects on small-time investors (paywall) elsewhere in peripheral Europe:

Unless there is a last-minute reprieve for small savers, most Cypriot savers would act rationally if they withdrew the rest of their money simply to protect them from further haircuts or taxes. It would be equally rational for savers elsewhere in southern Europe to join them. The experience of Cyprus tells them that the solvency of a deposit insurance scheme is only as good as that of the state. In view of Italy’s public sector debt ratio, or the combined public and private sector indebtedness of Spain and Portugal, there is no way that these governments can insure all banks’ deposits on their own.

The Cyprus rescue has shown that the creditor nations will insist from now that any bank rescue must be co-funded by depositors.

For that reason, banks in Cyprus are closed today, and will remain shut through Wednesday, according to the Wall Street Journal.

It also shows that the poorly managed Greek scenario is not unique, write Morgan Stanley analysts; whether it’s depositors or sovereign bondholders, the private sector will once again bear the full burden of some kind of debt restructuring:

Although the levy on Cypriot deposits may be a ‘unique’ action due to the particular characteristics of its banking sector, investors may take that as a new template for countries with similar challenges. In other words, levy on deposits for countries with oversized banking sector and PSI countries with sovereign leverage…

The Cypriot taboo-breaking solution of hitting depositors takes us further along the road of new ways to spare taxpayers’ money.

It may be that just as they tried to avoid repeating the exact formula they used in Greece, Europe’s leaders will not allow a carbon-copy repeat of Cyprus. In particular, political turmoil risks reflating concerns about the stability of the massive Spanish and Italian economies.  Cyprus’s bailout establishes a pattern of trying to make private investors in a country stomach all the pain of its restructuring. That reduces their incentive  to keep money in peripheral European banks or invested in struggling countries’ sovereign bonds—which weakens the countries further and makes their need for a bailout even more likely. So a lthough EU leaders have deviated from the Greek plan, the Cypriot solution really isn’t much better at inspiring confidence.
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March 18, 2013, 07:25:47 PM
 #7

...
So, it may be emblematic of the ongoing failures of the banking system, but it's not something that Bitcoin really solves.


Yes, with bitcoin you can still do fractional reserve....but not to the same degree system-wide as with fiat. Things shouldn't lever as far with bitcoin as the monetary base, since there's no way to backstop it (print more) if/when failures due to leverage occur. Thus, depositors would get freaked out at lower leverage levels, preventing these huge bubbles from getting created.

So in a bitcoin world, Cyprus' banking system wouldn't've gotten to the point where it needed the bailout; thus there would've been no talk of deposit confiscation.

#bitcoinUsersNotAffected

Very well put. I agree entirely.
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March 18, 2013, 08:43:45 PM
 #8

I love how the news reports are out there saying 'no bank run' because people are not at ATMS this weekend.  It is a bank holiday and people will not know about a drain on the banks until later in the week.  Even if it happens, I doubt it would be reported so as not to spur on more withdrawals. 

Larger accounts are going to be moving out of troubled countries and into more robust countries slowly but surely.  And if 10% of people withdraw, it will make it even worse for the troubled ones. 

http://blogs.marketwatch.com/thetell/2013/03/18/no-bank-runs-in-spain-so-far/

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March 18, 2013, 09:17:25 PM
 #9

I'm in Brazil and I don't have 1 penny on the Banks since 2011...

Why do we need the Banks? Don't remember...       Tongue

I recommend the same for everyone:


1- Don't let your freaking money at the Banks! Go Bank run! GO!

2- Buy some Bitcoins or you'll regret in the future!   lol


And if you would like to kick the ass of the Governments alongside with the ass of the Banks, go to the informal sector (informal economy).


Bitcoin: The Currency of the Infomal Economy!

Bye, bye Govs and Banks...

Cheers!
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March 18, 2013, 09:50:22 PM
 #10

Yes, with bitcoin you can still do fractional reserve....but not to the same degree system-wide as with fiat. Things shouldn't lever as far with bitcoin as the monetary base, since there's no way to backstop it (print more) if/when failures due to leverage occur. Thus, depositors would get freaked out at lower leverage levels, preventing these huge bubbles from getting created.

So in a bitcoin world, Cyprus' banking system wouldn't've gotten to the point where it needed the bailout; thus there would've been no talk of deposit confiscation.
An optimistic view of things. Perhaps, once the financial industry learns that Bitcoin has no printing-press, no fiat safety net, they'll be more prudent with their client investments. But personally, I feel like it'll be hard for financial professionals who have used fiat all their lives to really adjust to that mindset, and until they do, they'll be just as reckless as always.

I suppose we'll just have to see.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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March 18, 2013, 09:53:28 PM
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An optimistic view of things. Perhaps, once the financial industry learns that Bitcoin has no printing-press, no fiat safety net, they'll be more prudent with their client investments. But personally, I feel like it'll be hard for financial professionals who have used fiat all their lives to really adjust to that mindset, and until they do, they'll be just as reckless as always.

I suppose we'll just have to see.
Just remember to never let anyone else hold on to your bitcoins for you and you'll be come out of it better off than those clients.
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March 18, 2013, 11:04:59 PM
 #12

Sir Mervyn King once said it was not rational to start a bank run but rational to participate in one once it has started. The governor of the Bank of England was right, of course. On Saturday morning, the finance ministers of the eurozone may well have started a bank run.

http://www.ft.com/cms/s/0/b501c302-8cea-11e2-aed2-00144feabdc0.html

Founders Note:
This would never happen to bitcoin.


Got a non-paywall version?  I know you can register for free, but kind of annoying that you don't just see the article.

Maybe I shouldn't say this aloud... but for the good of the community...

To get around the 'paywall' just Google the name of the article. In this case:

Google --> Europe is risking a bank run

Click on the first result, and you should see the article no problem.



This works because websites must allow Google's site crawler to see the whole page in order to stay relevant. This works on many 'paywall' sites.

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