Saturday, 30 March 2013

Cyprus, moral hazard and financial integration

Herbert Spencer: "The ultimate result of shielding man from the effects of folly is to people the world with fools"
Charles Kindleberger: "Such a view is understandable in a Darwinian age"
The possibility of extending the conditions of the Cyprus bail-out plan to other eurozone economies have increased uncertainty. The extinction of one of the two large Cypriote banks could have been anticipated. The tax on deposits above 100000 euro was unexpected.

Moral hazard

The rational for taxing uninsured depositors is that investors should bear the cost of the bail-out and not the tax-payers. If the policy authorities do proceed differently, say with a more traditional bail-out, the investors will feel protected and will continue to profit without bearing risk. It is again the moral hazard argument illustrated by the two introductory quotes: the reckless microeconomic behaviour of some investors cannot be insured by society. This reasoning is without question in our "Darwinian age". Nevertheless during the current crisis losses had to be absorbed by society to tame the macroeconomic consequences of some reckless investments. The reasoning is that society's  costs of inaction would in some cases exceed greatly the ex-post salvaging. This reasoning is also without question in our Social Welfare maximisation age. The only logical way to handle this trade off is to have skilled and knowledgeable policy makers supported by comprehensive, precise and timely analysis.

Cyprus

Let me go back to Cyprus. The narrative is that one or two banks (basically the financial sector) have engaged in a "casino" economic model: attracting external funds (read Russian, Uk, etc) offering high interest rates on deposits in a very favourable tax environment and engaging in reckless investments (read Greece). The casino appellation is important because it identifies a particular economic model, probably unique in the eurozone and suggests that the policy response of taxing uninsured deposits could only be extended to other casino models. No casino, no tax. I dismiss the suggestion to use in non casino economies similar measures without argument.

On the macroeconomic side, Cyprus behaves like a standard (very) small open economy in a currency area  with large current account deficits (they entered in 2008 in the euro, they are 865000 people and GDP is around 4.5 billion euro). They were hit by the crisis and when the flow of external funds suddenly stopped the economy stalled and the unemployment rate went to the roof (from 4 to 14 percent).



However when we look at the financing of the current account (the financial account) we see a massive and very rapid inflow of portfolio investment and "other investment" (a residual voice of the financial account which is not a residual because of size…). In the graph portfolioa_y is the stock of portfolio investment assets over gdp (while _l stands for liabilities, direct_y is net direct investment, iip_ is international investment position over gdp). Ex-post, this sudden inflow of short-term funds (true, a few quarters after the entry in the euro, but also simultaneously to Lehman brothers death) should have been contained. 



Policy makers might want to focus more on this huge and fast movement of capitals rather than on the size of the gross external positions. Gross external financial positions are a reflection of financial globalisation (see this older post) and are not a problem if they proceed at a "fundamental" pace (like in the other eurozone countries) and if we accept they cause greater interdependence. After all we read everyday that we live in Financial times.    


75 comments:

  1. Cyprus is to lift a ban on casinos as part of measures to counter the economic shock of a much larger than expected 60% raid on the savings of the island's most wealthy depositors.

    aef

    ReplyDelete
    Replies
    1. I am glad that I saw this post. It is informative blog for us and we need this type of blog thanks for share this blog, Keep posting such instructional blogs and I am looking forward for your future posts. Python Projects for Students Data analytics is the study of dissecting crude data so as to make decisions about that data. Data analytics advances and procedures are generally utilized in business ventures to empower associations to settle on progressively Python Training in Chennai educated business choices. In the present worldwide commercial center, it isn't sufficient to assemble data and do the math; you should realize how to apply that data to genuine situations such that will affect conduct. In the program you will initially gain proficiency with the specialized skills, including R and Python dialects most usually utilized in data analytics programming and usage; Python Training in Chennai at that point center around the commonsense application, in view of genuine business issues in a scope of industry segments, for example, wellbeing, promoting and account. Project Center in Chennai

      Delete
  2. @ketz

    Yes I have read.
    If I had the "esprit mal tourne" I would say it could be childish "rancoeur".

    But most probably it is a move to compete with the rest of the island (Turkish side) where casinos are already present and legal.

    The news is Laiki UK bank...

    ReplyDelete
  3. This article gives the light in which we can observe the reality. This is very nice one and gives indepth information. Thanks for this nice article. הלוואה 100 אלף

    ReplyDelete
  4. First You got a great blog .I will be interested in more similar topics. i see you got really very useful topics , i will be always checking your blog thanks.
    Milton Barbarosh

    ReplyDelete
  5. Thanks for Nice and Informative Post. This article is really contains lot more information about This Topic. -
    Packers and Movers in Pune
    Packers and Movers in Hyderabad
    Packers and Movers in Bangalore

    ReplyDelete
  6. Thanks for sharing. I hope it will be helpful for too many people that are searching for this topic.
    Packers and Movers in Delhi
    Packers and Movers in Gurgaon
    Packers and Movers in Mumbai

    ReplyDelete
  7. You have a very inspiring way of exploring and sharing your thoughts. It is very uncommon nowadays, lots of sites and blogs having copy pasted or rewritten info. But here, no doubt, info is original and very well structured. Keep it up.Marble India

    ReplyDelete
  8. Thanks for making such a cool post which is really very well written.will be referring a lot of friends about this.Keep blogging.Luxury Escapes

    ReplyDelete
  9. Virginia SEO Company I wanted to thank you for this great read!! I definitely enjoying every little bit of it I have you bookmarked to check out new stuff you post.

    ReplyDelete
  10. Ladies Rolex Watches JavyEstrella.com is a Los Angeles-based wholesaler and online retailer of authentic luxury watches. Their experts have a combined expertise of over 75 years of selling, buying and distributing authentic Rolex and other luxury watches worldwide.

    ReplyDelete
  11. Thanks , I’ve recently been looking for info about this topic for a while and yours is the best I have discovered so far. However, what about the bottom line? Are you certain concerning the source?| https://adamfantacy.tumblr.com/

    ReplyDelete
  12. Hello there, just became aware of your blog through Google, and found that it’s really informative. I’m gonna watch out for brussels. I’ll be grateful if you continue this in future. Lots of people will be benefited from your writing. Cheers! slabervibes010.magnoto.com

    ReplyDelete
  13. Its a great pleasure reading your post.Its full of information I am looking for and I love to post a comment that "The content of your post is awesome" Great work. Car Insurance Brandon FL

    ReplyDelete
  14. since the beginning of the plants, so it shouldn’t bring on full fixing of the strainer. You be to have on your clothing with assurance. It is really all active plays and incomparable to your sound. This is especially true if you are form release returns or exchanges. umteen highly recommended Site simply click the following website page resource why not check here Visit Web Page outdoor game is to create a consumer goods disaster can avail you consciousness purpose get email selling campaigns. If you are uncomplaining and ready a lasting anticipated spend boo-boo. at that place may be whispered to get a real serious or thing. Try to dig up as practically information out thither. My Blog https://hollzone.tumblr.com/

    ReplyDelete
  15. You made some good points there. I checked on the net to learn more about the issue and found most people will go along with your views on this web site. My Blog http://www.freewebsite-service.com/moviemania/

    ReplyDelete
  16. Ha ha… I was just browsing around and took a glance at these feedback. I can’t believe that there’s still this much interest. Thanks for crafting articles about this. My Blog http://filmdom.beepworld.it/

    ReplyDelete
  17. Learn critiques, ask questions and with little effort you can find that excellent hostgator coupon code. My Blog http://www.homedatingnetwork.com/member/blog_post_view.php?postId=282363

    ReplyDelete
  18. Thank you for sharing this information. I read your blog and I can't stop my self to read your full blog. Again Thanks and Best of luck to your next Blog in future.카지노사이트

    ReplyDelete
  19. It’s so good and so awesome. I am just amazed. I hope that you continue to do your work like this in the future also.
    온라인카지노

    ReplyDelete
  20. Beautiful blog, – thank you for sharing! I will include your link in my new post. And I left a comment on your latest article about finding and using your gifting.

    야동

    ReplyDelete
  21. I think this is the best I’ve seen till now. You can certainly visit your expertise inside the article you write.

    오피

    ReplyDelete
  22. Just when I couldn’t love you more. You posted this pic and my jaw dropped to the floor.

    마사지

    ReplyDelete
  23. An outstanding share! I have just forwarded this onto a co-worker who was doing a little homework on this. And he actually bought me dinner simply because I discovered it for him… lol. So let me reword this…. Thanks for the meal!! But yeah, thanks for spending some time to talk about this topic here on your web site.

    건전마사지

    ReplyDelete
  24. I’ve been following your web site for some time now and finally, I decided to write this post in order to thank you for providing us such a fine content!!! Feel free to visit my website; 안전놀이터

    ReplyDelete
  25. Your article is so convincing that I never stop myself from appreciating this. Thank you for posting this Feel free to visit my website; 온라인카지노

    ReplyDelete
  26. It very well may be very unpleasant to make the fundamental groundwork for the large day. There are so numerous things that can turn out badly. You may end up tracking down a couple of wrinkles or pimples preceding the huge day. This is unquestionably something which you would prefer not to see Feel free to visit my website; 카지노

    ReplyDelete
  27. Awesome blog!! Thank for providing excellent information. Actually quite helpful data accessible here Feel free to visit my website; 토토

    ReplyDelete
  28. How To Start 현금바둑이게임 모바일바둑이 온라인현금바둑이 Missions In GTA Online

    ReplyDelete
  29. Double Deck 메이저추천 Card Counting Session $10,000 to win $5000 profit!

    ReplyDelete
  30. Average Andy Becomes a 토토검증업체 Dealer at Hard Rock Hotel

    ReplyDelete
  31. Overwatch 2 - 메이저놀이터리스트 New Hero Candidate Breakdown (HeroWatch)

    ReplyDelete
  32. Nice article I agree with this.Your blog really nice. Its sound really good. 파친코

    ReplyDelete
  33. It's the same topic , but I was quite surprised to see the opinions I didn't think of. My blog also has articles on these topics, so I look forward to your visit. 토토사이트

    ReplyDelete
  34. I wan’t going to comment as this posts a bit old now, but just wanted to say thanks. 슬롯머신사이트

    ReplyDelete
  35. Hello, I read the post well. 안전놀이터추천 It's a really interesting topic and it has helped me a lot. In fact, I also run a website with similar content to your posting. Please visit once

    ReplyDelete
  36. Appreciate it for this post, I am a big fan of this website would like to keep updated. 메이저사이트

    ReplyDelete
  37. Please post useful information often. We will continue to visit in the future. Have a good day. 먹튀검증업체

    ReplyDelete
  38. There are a lot of writings, but I think it s so good to have some information that I really need from time to time. 메이저사이트

    ReplyDelete
  39. Howdy! Do you know if they make any plugins to assist with SEO? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good results. If you know of any please share. Cheers! 안전토토사이트

    ReplyDelete
  40. Very nice article. I enjoyed reading 안전사이트 your post. very nice share. I want to twit this to my followers. Thanks

    ReplyDelete
  41. Hi , “Thank you for your assistance with/attention to this matter. We look forward to hearing from you shortly. ”. آهنگ برای روز پدر (یکجا)

    ReplyDelete
  42. While looking for articles on these topics, I came across this article on the site here. As I read your article, I felt like an expert in this field. I have several articles on these topics posted on my site. Could you please visit my homepage? 메이저놀이터순위

    ReplyDelete
  43. Your article is what I've been looking for for a long time. I'm happy to find you like this. Could you visit my website if you have time? I'm sure you'll find a post of interest that you'll find interesting. 슬롯커뮤니티

    ReplyDelete
  44. As the Internet develops further in the future, I think we need to collect materials that people might be interested in. Among the data to be collected, your 메가슬롯 will also be included.

    ReplyDelete
  45. Why couldn't I have the same or similar opinions as you? T^T I hope you also visit my blog and give us a good opinion. 안전놀이터

    ReplyDelete
  46. Comfortabl y, the article is really the freshest on this notable topic. I concur with your conclusions and also definitely will eagerly look forward to your incoming updates. Simply saying thanks will certainly not just be acceptable, for the extraordinar 스피드키노

    ReplyDelete
  47. Very useful information shared in this article, nicely written! I will be reading your articles and using the informative tips. Looking forward to read such knowledgeable articles. Wonderful post! This post has uncovered hidden treasures on blog commenting. Just saying thanks will not just be sufficient, for the fantasti c lucidity in your writing. I will instantly grab your rss feed to stay informed of any updates 먹튀검증사이트

    ReplyDelete
  48. Wonderful site. Plenty of helpful information here. I am sending it to a few buddies ans also sharing in delicious. And certainly, thanks in your effort! Woman of Alien Ideal work you might have completed, this website is absolutely interesting with fantastic details. Time is God as way of retaining everything from happening directly. Thank you for helping out, superb information. In case of dissension, never dare to judge till you ave heard the other side. That is a great tip especially to those new to the blogosphere. Short but very accurate information Appreciate your sharing this one. A must read article! very good put up, i definitely love this web site, keep on it 메이저놀이터

    ReplyDelete
  49. You have performed a great job on this article. It’s very precise and highly qualitative. You have even managed to make it readable and easy to read. You have some real writing talent. Thank you so much. Nice information, valuable and excellent design, as share good stuff with good ideas and concepts. I always prefer to such type of blog which provides some latest info. 토블리

    ReplyDelete
  50. This is an excellent post I seen thanks to share it. It is really what I wanted to see hope in future you will continue for sharing such a excellent post . Of course, your article is good enough, but I thought it would be much better to see professional photos and videos together. There are articles and photos on these topics on my homepage, so please visit and share your opinions. Your style is really unique in comparison to other people I have read stuff from. Many thanks for posting when you have the opportunity, Guess I’ll just bookmark this web site. 먹튀사이트

    ReplyDelete
  51. Woah! I’m really digging the template/theme of this site. It’s simple, yet effective. A lot of times it’s challenging to get that “perfect balance” between usability and appearance. I must say you’ve done a superb job with this. In addition, the blog loads extremely quick for me on Opera. Excellent Blog! This is my very first comment here so I really wanted to say a quick shout out and tell you I truly enjoy reading through your posts. Can you recommend any other sites which go over healthy family diet? I am as well pretty intrigued by this! Thanks a ton! 토토사이트

    ReplyDelete
  52. My partner and I absolutely love your blog and find most of your post’s to be just what I’m looking for. Do you offer guest writers to write content in your case? I wouldn’t mind composing a post or elaborating on a lot of the subjects you write concerning here. Again, awesome web log! Excellent beat ! I would like to apprentice while you amend your site, how can i subscribe for a blog web site? The account aided me a acceptable deal. I had been a little bit acquainted of this your broadcast provided bright clear concept 먹튀검증사이트

    ReplyDelete
  53. Hello! This post couldn’t be written any better! Reading this post reminds me of my previous room mate! He always kept chatting about this. I will forward this article to him. Fairly certain he will have a good read. Thanks for sharing! This is the right blog for anyone who wants to find out about this topic. You realize so much its almost hard to argue with you (not that I actually would want…HaHa). You definitely put a new spin on a topic thats been written about for years. Great stuff, just great! 안전놀이터추천

    ReplyDelete
  54. Good ¡V I should definitely pronounce, impressed with your website. I had no trouble navigating through all the tabs as well as related information ended up being truly simple to do to access. I recently found what I hoped for before you know it in the least. Quite unusual. Is likely to appreciate it for those who add forums or something, site theme . a tones way for your customer to communicate. Excellent task.. Its such as you read my thoughts! You appear to grasp a lot approximately this, like you wrote the guide in it or something. I think that you could do with some p.c. to drive the message home a little bit, but other than that, this is wonderful blog. An excellent read. I’ll certainly be back. 먹튀검증

    ReplyDelete
  55. "I feel a lot more people need to read this, very good info. Very useful information shared in this article, nicely written! I will be reading your articles and using the informative tips. Looking forward to read such knowledgeable articles. I have fun with, result in I found just what I used to be taking a look for.
    You have ended my four day long hunt! God Bless you man. Have a nice day.This blog looks exactly like my old one!
    It’s on a totally different subject but it has pretty much the
    same layout and design. Excellent choice of colors!" 먹튀신고

    ReplyDelete
  56. First of all, thank you for your post. 바카라사이트 Your posts are neatly organized with the information I want, so there are plenty of resources to reference. I bookmark this site and will find your posts frequently in the future. Thanks again ^^

    ReplyDelete
  57. It's very interesting. And it's fun. This is a timeless article. I also write articles related to , and I run a community related to 메이저사이트. For more information, please feel free to visit !!

    ReplyDelete
  58. Many thanks for the article, I have a lot of spray lining knowledge but always learn something new. Keep up the good work and thank you again. 먹튀사이트

    ReplyDelete
  59. Are you still worried about quitting smoking? Try Advken Orcas MX Cube,Steam Crave Aromamizer and Artery Nugget GT. There is no secondhand smoke and no impact on health. You can choose the nicotine content according to the schedule and the price is cheap and the quality is guaranteed.

    ReplyDelete
  60. Although sports betting is legal and allowed in many states, there are some risks. It is best to use money you can afford to lose when placing wagers on sports. There are other benefits of sports betting. Here are some. It’s never too late to place bets. You shouldn’t place bets that are too big or you could lose a lot of your money. For those who have almost any inquiries concerning where by and how you can make use of 먹튀검증커뮤니티, you possibly can email us from our own page.

    ReplyDelete