The centrality of property rights is why Cyprus is sending shock waves through the global financial system. As many know by now, the European Union coerced Cyprus' leaders into trying to confiscate 6%-10% of every local bank account. Universal outrage stopped the theft in its tracks.
By John Rubino
March 22nd, 2013
In Niall Ferguson’s Civilization: The West and the Rest, he presents a list of institutional arrangements that turned a bunch of ignorant, “malodorous” Europeans into the world’s dominant culture in the space of a couple of centuries. One of those institutional arrangements was property rights. That is, when something is yours it’s yours, not the king’s or the clergy’s or the local lord’s. A contract, once agreed to, is sacred before the law and is enforced by the powers-that-be.
This institution hasn’t always been perfectly respected, of course, but in the West’s more successful capitalist democracies it has been solid enough to allow citizens to work, save, create and innovate, reasonably secure in the knowledge that they’ll get to keep most of what they earn and all that they save.
The centrality of property rights is why Cyprus is sending shock waves through the global financial system. Smaller than Greece, difficult for most Europeans (and for virtually any American) to locate on a map, this pretty little island (the home, I just discovered, of Mt. Olympus) was the scene of an attempted crime that, had it succeeded, would have produced bank runs in a dozen countries and pretty much vaporized the financial systems of Italy, Greece, and maybe Spain.
As everyone knows by now, the European Union, in return for a rounding-error-tiny bailout of 10 billion euros, coerced Cyprus’ leaders into trying to confiscate 6% – 10% of every local bank account. Universal outrage stopped the theft in its tracks, but not before the world got a glimpse of their leaders’ true natures. To “the Troika” what’s theirs is theirs and what’s yours is theirs, and quaint concepts like private property are always subordinate to the maintenance of power.
This isn’t the first assault on property rights since the financial system seized up in 2009. In the US, contracts governing bond seniority were abrogated when General Motors went bankrupt. A case could also be made that the US bank bailouts were a blatant theft of taxpayer cash — and that inflation itself violates property rights by secretly stealing savers’ wealth.
But taking the bank accounts of people who had no role in their bank’s bad decisions or the economic policies that led to the bailout is the first theft that’s visible and understandable for the average person. As such it risks changing mass psychology in a way that no other financial crime of the past thirty years has done.
We now know that in a pinch the guys in charge will come after our assets. And since black swans are lined up like jets waiting to land at Heathrow, it’s a safe bet that some future crisis will be big enough to lead Congress or the ECB or some other predator to try to plunder broad categories of financial accounts. Trillions of dollars are sitting in US IRAs and 401(K)s, for instance, untaxed and just waiting to be converted to Treasury bonds for the greater good.
But a raid on 401(K)s is a while away. More immediately, like on Monday, what Italian in their right mind will leave money in their local bank after seeing what happened to Cypriots this week? Probably not many. Which means bank runs, followed by capital controls, followed by another euro-crisis eruption.
And even if some adroit policy deception prevents a bank run on Monday, our conception of a savings account – or any other financial account – has changed. What’s ours might not really be ours, if the government wants it.
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