When Governments Steal

Briton Ryle

Updated March 20, 2013

Europe’s leaders have lost their minds.

They’ve gone from being slightly comical socialists to dangerous fascists virtually overnight.

Outright theft of bank deposits, as the EU has proposed to Cyprus in exchange for bailout loans, is something Moamar Qadafi might have thought up. I can imagine Saddam Hussein stealing money from Iraqi banks. Hugo Chavez could have nationalized bank deposits the same way he nationalized oil fields.

Funny thing: None of these men are still in power.

So, where does Germany’s Angela Merkel and her EU cronies think they’ll be after the next elections? Or maybe they think they can steal those, too?

The entire European debt saga has been a circus. Remember the Greek elections, when one candidate nearly won on a platform of reinstating the pensions and early retirement benefits that had helped bankrupt the government in the first place? And who could forget French President Hollande’s 75% tax bracket?

Yes, Europe has some strange ideas about money and government. But to demand the Cypriot government take $7 or $8 billion from its citizens’ bank deposits is a whole new ballgame.

The media has called it a “tax”; they’ve used words like “levy” and “appropriation.”

But let’s call it what it is: theft.

Risk On

When Greece’s bailout was approved, the EU demanded Greek bondholders take a haircut as their bonds were replaced with less valuable bonds with lower interest rates. That made sense — for two reasons…

One, anybody who bought Greek bonds knew the risks, and they took their chances to get the high yields. There’s risk and there’s reward. That’s what markets are all about. And if you can’t manage the risk, well, the market crush you.

Like it did to former New Jersey governor Jon Corzine. As CEO of the futures trading firm MF Global, Corzine put his company “all in” on Greek debt in a desperate ploy to make a quick buck and maybe save the company. It didn’t work.

MF Global started getting margin calls, so Corzine stole money from customer brokerage accounts to meet the margin calls. Hmmm… stealing money from customer accounts. Where have I heard of that before?

Of course, MF Global went bankrupt, customers lost their money, and Corzine isn’t in jail. In fact, he still hasn’t been charged with anything.

Yep, stealing is wrong — I guess, unless you really need the money.

Back to the Greek bailout: Two, the investors that bought Greek bonds did so voluntarily. Nobody forced them to buy the bonds. What’s more, they had plenty of time to sell them as it became clear that Greece would default. Sure, they wouldn’t have gotten full price, but that’s what risk management means: take the small loss before it becomes a big loss.

Now, if you live in Cyprus, do you have any choice but to put your cash in Cypriot bank? I think not.

Violation of Trust

Now that Europe has proposed theft of deposits, there’s no way to unsay it.

We now know that Europe’s leaders, and especially Angela Merkel, have no limit.  

Nothing is off limits. Such conventions as private property and fiduciary trust will be ignored if there’s a tough choice to be made.

If I lived in Spain, or Italy, or any other European nation that was getting bailout money, I’d get my cash out of the bank. It may only be a matter of time before the EU demands that a portion of it be stolen.

Now, I understand the German people may be sick of bailing out other countries that took advantage of low interest rates to rack up insane amounts of debt. I wouldn’t like it, either. But I like stealing even less.

Fortunately, the Cypriot parliament voted against stealing the bank deposits of the citizens they represent. Good for them, if you believe simply doing the right thing warrants praise.

Unfortunately, the damage has been done. Cyprus’ banks will now fail for sure as depositors go get their money.

Good job, Angela Merkel.

It Could Get Worse…

It’s one thing to watch Europe twist basic legal guarantees as they try to sort out their debt problems. Europe is fundamentally socialist anyway, right? That could never happen in America, right?

Well, not so fast…

We’ve already seen a president win reelection by basically starting a class war, saying the wealthy need to pay their fair share. And the result was that taxes were raised on the rich (defined as families that make over $450,000), but not on anyone else.

Obama is still looking to raise taxes as part of a new budget deal, and there’s been a proposal for a new national gasoline tax.

And don’t forget about the Affordable Care Act, also known as ObamaCare, that seeks universal health care coverage, but does little to control costs…

Then there’s Social Security and the entitlement programs, MediCare and MedicAid. We know changes will be coming to these programs. We don’t what they will be — not yet — but there’s a hint out there.

A liberal think tank called the Pension Rights Center thinks retirement accounts are unfair to poor people and has proposed a government-run retirement program that would “replace” 401(k) accounts with government-run accounts that would be funded directly from your paycheck.

Sounds crazy, but the Treasury Department and the Labor Department have already held hearings with the Pension Rights Center about the plan.

I can’t say how seriously these ideas are being considered. But I bet the people of Cyprus didn’t think their government would consider stealing part of their bank deposits… until they woke up Monday to closed banks and ATM machines.

We’ll be faithfully tracking this story, and we will let you know what you can do to protect yourself in future issues of Wealth Daily.

Profitably yours,

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

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