Economist Richard Wolff explains implications of plan and why he’s inspired by Cypriots’ defiant display of people power
No 705 Posted by fw, March 28, 2013
“[This is] simply an attempt to save private banking. What they’re going to do is move much of that closed bank into the other non-closed bank and have the government absorb the losses that are not transferred, so that you can save private banking by reducing three or four large banks to one fewer by taking the one in the worst condition and basically bailing it out for its mistakes and putting what’s valuable in it into the other private banks. It’s a refusal to confront that private banking, not just in Cyprus, not just in Greece, but across the world, has driven us into a catastrophe of global proportions, and we’re doing everything in our governments to fix this situation without imposing on them, without questioning their failed performance. It’s an amazing study in how to solve a problem by refusing to confront its cause.” —Richard Wolff
Thanks to activist Richard Wolff for this Economics 101 lesson and to the people of Cyprus for their courageous display in standing up to the bankers and politicians who continue to steal our money to line their pockets. And let’s not forget Democracy Now for bringing us the truth.
Click on the linked title below to watch an interview with Wolff and access the full transcript. Or watch the 12-minute interview in this post’s embedded video followed by an abridged transcript with subheadings and highlighted text.
A People’s Revolt in Cyprus: Richard Wolff on Protests Against EU Plan to Seize Bank Savings, Democracy Now interview with Wolff. March 25, 2013
The eyes of the financial world are on the small Mediterranean island of Cyprus today. The government of Cyprus has brokered a last-ditch $13 billion bailout deal with European officials to stave off the collapse of its banking sector. Under the deal, all bank deposits above approximately $130,000 will be frozen and used to help pay off the banking sector’s debts. An earlier version of the deal collapsed last week when Cypriots took to the streets to protest paying a tax of up to 10 percent on their life savings. The plan led to mass demonstrations as well as panicked bank withdrawals as Cypriots rushed to protect their savings. “It’s a demonstration of people power in this little corner of the world that’s very impressive, and the basis, I think, for some optimism about opposition,” says Richard Wolff, economics professor emeritus at University of Massachusetts, Amherst, and visiting professor at New School University. He is the author of several books including, most recently, Democracy at Work: A Cure for Capitalism.
[NOTE: Richard Wolff is the speaker in all the following passages]
The EU and IMF intend to steal from the people to bail out the banks
Well, Cyprus is significant for several reasons. First, it marks an escalation in what we call austerity economics. It is an effort to pay for the cost of this now six-year-old global crisis in a new way. It is an effort to fund the bailouts of banks in a new way. And the new way was agreed last week by the European forces that control this—the central bank, the European Union and the IMF—and to impose on Cyprus this new step, which is literally to go into the bank accounts of the citizens of Cyprus, roughly a million people on a small island in the middle of the Mediterranean, and snatch money out of their accounts. See, unlike other austerity, where you levy a tax and you cut back social programs, like we’re doing here in the United States, that money dribbles in over a year or longer period. This way, the government can get the money to bail out the banks quickly and cleanly and neatly. Friday night, the people of Cyprus went to bed with a certain amount of money in their accounts—they thought—and Monday morning, last Monday, they were supposed to awake with X percent less money because the government had taken it. So, that’s an amazing new step of austerity. It suggests that this crisis is far from over and that the authorities are desperate to find the money, other than by taxing corporations, other than by taxing the wealthy, in order to solve their problems.
Demonstration of people power in Cyprus may be reason for cautious optimism
The second reason it’s important is that the people of Cyprus woke up, took one look at this, and said no—and did it dramatically. And in a matter of hours, they undid everything that the European governments and their own government had agreed to a few nights earlier. So it’s a demonstration of people power in this little corner of the world that’s very impressive, and the basis, I think, for some optimism about opposition.
Cypriots’ threat to “disrupt everything” may spark spread of revolt to other EU countries
Basically, by saying, “We’re going to disrupt everything. We’re not going to go to work. We’re not going to consume. We’re just—we’re going to call on our fellow citizens across Europe to recognize that if they can come into our bank account and take our money, then what is exactly going to happen in places like Italy, Spain, Portugal, Hungary, Britain, where very similar situations are playing themselves out?” So this call for solidarity around this issue terrified all the other governments of Europe. And suddenly, the firmly committed deal unraveled in the face of popular resentment and opposition.
Banks’ risky investments are to blame for economic turmoil in Cyprus – and now they want to be bailed out
Cyprus is a small country. Its economy is based on three things: tourism—it’s a very pleasant place for northern Europeans to go; shipping, as befits an island; but above all, what is euphemistically called “finance.” In the go-go years of the 1990s and early in this century, what the banks in Cyprus did is offer themselves around the world as a wonderful place to come and make a deposit. “We will convert whatever currency you have into euros,” which is a very good currency to have. “We will pay you an unusually high interest rate. We will ask no questions.” This is often called “good banking.” So they got a lot of deposits. To give you an idea, depending on the estimates you believe, the total deposits in the banks of Cyprus were five to eight times larger than the total GDP, the total output per year, of that economy, which is an absurd situation.
And those banks in Cyprus took all those deposits, and then they did what banks are supposed to do: find prudent, safe, non-risky investments. And like all big banks in the last 20 years, they failed. They found bad investments. They didn’t do it prudently. They mis-assessed the risk. And then the banks fell apart. Since that’s an outsized part of the Cyprus economy, the whole Cyprus economy, already impacted by this crisis with less tourism and less shipping, now saw its banks defunct—bankrupt, basically—and appealed to Europe to bail them out, which is the standard procedure now in Europe as these economies have such trouble.
“We will go down and take you with us, unless you bail us out,” warn bankers and political leaders
This is blackmail. This is basically the officials of the banks and the political leaders going to the mass of people and saying to them, “This awful deal that makes you, who have nothing to do with the crisis and didn’t get any bailout, pay the costs of the crisis and the bailout. You must do this, because if you don’t, we will do even more damage to you and your economy. So give us your deposits, give us your money, pay more taxes, suffer fewer social programs, because if you don’t, we will impose even worse on you.” It’s the basic idea of austerity across the board and in our country, too. And I think it’s the confrontation of a system that does not work with the mass of the people, saying, “We will go down and take you with us, unless you bail us out.”
Translated into simple English, they’re going to take the depositors’ money and bail out the banks. In other words, the money leaves the account of the depositor—you and me—and goes into the account of the bank itself. It is the banks, through the government, stealing from their own depositors. It is stunning, as an economist, to watch it. It’s the opposite of a bank guaranteeing your deposit. It’s a bank looting your deposit in their own bank. It’s an extraordinary study in how extreme this crisis is, that they would have to go to such an extent and risk the blowback that you already see in Cyprus and that is building in other countries as they confront similar measures.
This is an amazing study in how to solve a problem by refusing to confront its cause
That’s simply an attempt to save private banking. What they’re going to do is move much of that closed bank into the other non-closed bank and have the government absorb the losses that are not transferred, so that you can save private banking by reducing three or four large banks to one fewer by taking the one in the worst condition and basically bailing it out for its mistakes and putting what’s valuable in it into the other private banks. It’s a refusal to confront that private banking, not just in Cyprus, not just in Greece, but across the world, has driven us into a catastrophe of global proportions, and we’re doing everything in our governments to fix this situation without imposing on them, without questioning their failed performance. It’s an amazing study in how to solve a problem by refusing to confront its cause.
- Cure for “bads” of capitalism outlined by economist Richard Wolff in 15-minute video Posted March 19, 2013. To cure the “bads” of capitalism, change how the system of production is organized.