Cyprus runs on banks can bankrupt many banks around the world and cause great depression
Cyprus is a small country, but if Cyprus taxes the depositors and get runs on banks, then it will affect the depositor mood around the world. A lot of Cyprus depositors are actually Russian. This can cause depositors around the world to withdraw money from weaker banks, especially those banks in the PIIGS Euro countries. Banks are usually very highly leveraged. Just a small portion of withdraws can cause them to bankrupt. This can become very similar to great depression runs on banks. When banks are scared, they do not lend, and that will eventually put the economy to downward spirals just like the great depression. We are only at the very beginning of the crisis.
Investors are way too silly to buy at this point as the Cyprus crisis is far from over. Actually it may not even have barely started yet. The banks in Cyprus has been closed for the second week which essentiallly shuts down the entire economy of Cyprus. The ripple effect is just starting to brew underground as it is now clear the big depositors will lose money in Cyprus. How much money they will move out of other Euro banks still remains to be seen. This crisis has barely started. We shall see the first massive bank run since great depression when Cyprus banks open on Thursday.
In the mean time Cyprus crisis is also getting worse, not better. The longer it drags on, the wider the crisis can spread. Cyprus aside, I would not be surprised that depositors around the world are starting to withdraw money out of the weak Euro zone PIIGS countries now. If this crisis drags on, we may see news from Euro zone PIIGS banks that they need emergency assistance too.
NICOSIA — Cyprus faces a hardened deadline of next Monday to secure a new agreement on an urgently needed bailout, after the European Central Bank said Thursday it would shut off access to crucial low-cost bank funding if an accord were not reached by that time.
Meanwhile, the mood turned sour on the streets of Nicosia, the Cypriot capital, where people flocked to cash machines Thursday morning to withdraw as much money as possible after the government declared that banks would remain closed until next Tuesday to give officials time to renegotiate the bailout deal.
"Depositor mood around the world" ....yeah. I'm in the mood for love...must check some porn sites to take care of it again. Yeah...depositor's mood...that's a good one....no no they can't take that away from me!
Cyprus rejected the idea of taxing the depositors, but that did not solve the problems at all. The banks are still broke without funds. And what the people will do when the banks open for business is still unknown. And most importantly how many depositors in the Euro PIIGS countries are withdrawing money too will need to be seen in the next few months. And the continuous slump in the Europe will almost guarantee this is not the last crisis we will see. This crisis is far from over.
Not only this crisis is resembling the great depression runs on the banks, but also it has some similarity to the 2008 crashes. The stock markets are now at the top when the Cyprus bank crisis hits. In 2008, it was also the failures of financial institutions like Washington Mutual, Lehman Brothers, Merrill Lynch, etc. that brought the economy to its knees and crashed the lofty stock markets deeply eventually. And if you think about it, the problems of 2008 were mostly still around, and in many cases, the problems are even worse than 2008. The government debt levels are higher in all countries around the world, and the recessions in Europe just get worse and worse and spreading to more and more countries. IMF does not even have enough funds to rescue all the troubled countries. And all the central banks are already tapped out. There is no more quick fix tools left to use. This is worse than 2008 if you think about it.