00:00:01
well part of the uh uh reason why um the
00:00:05
Cypress situation is so uh difficult to
00:00:08
deal with is that uh Cyprus like Ireland
00:00:11
and like Iceland uh has a very large
00:00:14
Financial Market relative to the size of
00:00:16
uh its economy Cypress in fact uh you
00:00:19
know it's a tax Haven uh it offers
00:00:21
reduced tax rates for individuals of for
00:00:24
companies who hold deposits in in the uh
00:00:27
on the islands Banks and that's you know
00:00:29
together with tourism that's a major
00:00:30
source of income um so this is the type
00:00:33
of situation that you create when on the
00:00:36
one hand you have a big appetite in the
00:00:37
world because there's a lot of liquidity
00:00:39
for safe havens and tax Havens uh on the
00:00:43
one hand and on the other what you have
00:00:46
is Islands uh like Cyprus or countries
00:00:49
like Cyprus that essentially don't have
00:00:51
the institutions don't have the history
00:00:53
don't have the um pedigree to handle
00:00:56
this type of a situation effectively and
00:00:58
things have gten out of control
00:01:00
you see Switzerland uh plays the same
00:01:02
role in the global economy but of course
00:01:04
uh they know how to handle the situation
00:01:06
I don't think we will ever see a bailout
00:01:08
of Switzerland but so far we've had you
00:01:11
know this problem with Iceland and with
00:01:13
Ireland and in the past there's been
00:01:15
other problems with other safe havens
00:01:17
now in this case what makes it
00:01:19
particularly uh you know difficult is
00:01:21
that of course uh Cypress is part of the
00:01:23
Euro zone right and then on top of that
00:01:27
there is a major source of uh funding
00:01:30
that has been going into the um
00:01:32
Financial system there coming from
00:01:34
Russia and it turns out that many of the
00:01:36
companies or the individuals from Russia
00:01:38
that have been putting money into uh
00:01:40
banks in Cyprus happen to be very well
00:01:43
connected with the Kremlin and this is
00:01:45
why of course President Putin is making
00:01:47
so much noise about this because uh you
00:01:50
know some of the very rich Uh Russian
00:01:52
people who uh with political connections
00:01:55
are going to be losing you know 10 12%
00:01:57
of their money yeah the problem with uh
00:02:00
these economies with outside Financial
00:02:02
systems that essentially have attracted
00:02:04
money either with very high interest
00:02:06
rates like Iceland or with very low uh
00:02:09
tax rates like Ireland or or Cyprus is
00:02:12
that you need to have an infrastructure
00:02:14
in place a regulation you know legal
00:02:16
system everything in institutional
00:02:18
infrastructure so that the place is safe
00:02:20
now of course you could say well why did
00:02:23
people you know put money into those
00:02:25
banks in those places if they knew that
00:02:28
uh you know the foundations the
00:02:29
institutional foundations were not that
00:02:31
solid well of course you know there's
00:02:33
always people who are you know willing
00:02:35
to to risk uh things now the problem is
00:02:38
when individual decisions cumulate into
00:02:41
systemic risk and the problem of course
00:02:43
with Cypress is that not only the
00:02:45
country is unprepared to deal with
00:02:46
anything like this but it is also part
00:02:49
of the Euro Zone and so it has a
00:02:51
potential of destabilizing everything
00:02:53
now having said that I would like to add
00:02:55
that I think the finance ministers from
00:02:57
the European Union um essentially made
00:02:59
it the WR decision over the weekend
00:03:01
because it kind of sends the signal that
00:03:03
this could happen somewhere else that
00:03:04
they could actually impose a similar
00:03:06
kind of solution elsewhere like in Spain
00:03:08
or Italy and that's again the problem
00:03:10
with uh you know the potential the the
00:03:13
greater risk for a bank run uh in uh
00:03:17
other Eurozone countries whose Financial
00:03:19
system is also shaky
00:03:24
[Music]
