by Tyler Cowen
on May 5, 2013 at 12:09 pm
in Uncategorized |
1. On the economics of status.
2. Conservatives and prison reform, by Eli Lehrer.
3. Mark Kleiman on crime.
4. The depositor haircut for Cyprus.
5. Normative signs and the poetry of ought.
“He believed the rumours that rich Russians were tipped off in advance about what was going to happen.”
Everybody was tipped off in advance about what was going to happen. The plan was leaked in early Februray. The FT ran the story (http://www.ft.com/intl/cms/s/0/1d17a320-736f-11e2-9e92-00144feabdc0.html#axzz2SRDZP1Be), which was repeated prominently in Cypriot media.
Anyone who kept their money in Cypriot banks after that is either an idiot or faced constraints on pulling out money (the famous Russian gangsters).
The rate should have been a warning signal. For a bank to be giving savers 4.5 euros a year for every hundred they kept in the bank, when the European Central Bank base rate was only 75 cents, was a sign either that the bankers were wonderfully clever, or that they were taking a terrible risk.
That sums up why these people deserve no sympathy. They are like the “investors” in Bernie Madoff’s Ponzi scheme. They knew or should have known that something very shady was going on. They reaped the rewards of their willful ignorance.
Damn – too late again. Any time a bank is paying way above prevailing interest rates for deposits, it is basically the clearest indication available that the bank is about to fail.
Good rule of thumb for German Landesbankers coming out of the US housing bubble: if this AAA security yields 0.5% more than that AAA security, you might want to peek at the prospectus.
Those who locked in great rates at WaMu & Wachovia – or even Chase & BofA – during 2008/09 made out pretty well.
Sure, mainly because the U.S. (or its various organs) changed the deposit insurance rules – http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation
Particularly relevant in this regard is this link – http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#2008.E2.80.932010_Financial_crisis
The U.S. has seemingly abandoned the idea that anyone with sufficient wealth should ever suffer any penalty for taking advantage of it.
Not everywhere endorses the idea of too big to fail with the same enthusiasm as the U.S. however.
> Sure, mainly because the U.S. (or its various organs) changed the deposit insurance rules
Au contraire, the FDIC didn’t have to pay anything to depositors. JPM guaranteed all deposits.
I disagree. Finance is a fairly complex subject. I don’t expect most ordinary people to understand the implications of interest rates, what prevailing interest rate should be reasonable and so on. You have to read fairly esoteric publications nearly daily to start to get a feel for how central bank decisions should effect you and what not. Who has the time, patience and capacity to take all of that stuff in?
It was not so long ago that 4.5% was a perfectly reasonable rate to get on a savings account.
What really bugs me about this whole affair is that the decision was made to hit depositors to protect other creditors who should have been smart enough to know the risk they were running.
>What really bugs me about this whole affair is that the decision was made to hit depositors to protect other creditors who should have been smart enough to know the risk they were running.
That’s untrue, though. The reason they’re hitting the depositors is because there aren’t any creditors to hit. The creditors were smart and didn’t lend to Cypriot banks, and lent to Cyprus only under English law.
“It was not so long ago that 4.5% was a perfectly reasonable rate to get on a savings account.”
As I remember it, Milton Friedman was condemning bank regulators for regulation Q because 4.5% was too damn low an interest rate.
The promise of bank deregulation was higher interest rate.
Of course Friedman argued the 4.5% was too low because of loose monetary policy. But monetary policy then was much tighter than today.
So much for economic theory’s ability to predict anything.
But weren’t the deposits government insured? How was that insurance basis different than the FDIC insurance in the U.S.? (insuring your deposits up to a certain amount)?
The only mystery, then, is why have 300 in one bank, instead of 75 each in 4 banks (they way depositors would typically act in the U.S.)?
I can’t help but think that the author is conflating trust and status at times. I think the article would have been a much clearer read had this not been the case.
I almost always say please and thank you. Those that are obstructive I tell to go to hell. Do I have status? Does it matter?
Thank you for posting this comment. Your status as a commenter who tells it like it is has definitely gone up, although I am confident that you submitted the comment for purely utilitarian reasons. 😉
#1. One question is whether status can persist in the long run as barriers to entry seem to fall. And those barriers to entry seem to fall when it is profitable for them to fall. Two examples that come to mind are:
1. Harvard’s Master of Liberal Art’s degree, which appears to be an open admissions Harvard program.
2. The proliferation of for profit journals and conferences aimed at lower level schools seeking AACSB accreditation. If we can all get accredited for a fee, then does accreditation confer any status?
Mark Twain on status:
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