Monday, March 18, 2013

Bone-headed Move

So tell me. What would you be doing today if you woke up to the news that your country has just seized up to 10% of your savings account from your bank? That is the decision that Cypriots are making today. And they are doing the logical thing, taking their money out. It is called a 'run on the bank'.
This is having a far-reaching effect. All across Europe, the idea has taken seed that it could happen anywhere. First Cypress, then Italy, then Greece, followed by Spain and Portugal and perhaps then Ireland. By then there would be a cascading effect and all of Europe would be in a downfall and soon thereafter, America, etc. The warning sign will be huge when the banks declare 'Bank Holidays', a closing of the bank to prevent people from coming in to make withdrawals.
We see our governments do stupid things and we feel relatively helpless as there is so little we can do. But when our bank account is tampered with, we can do something.
We put our money in the bank because we deem it to be a safe thing to do. When it is apparent that it is not safe, we withdraw. When enough people do likewise, the bank and the banking system collapses.
Today's markets, as of this writing, reflect a nervousness, mainly due to the banking sector taking hits. After all, if your mutual fund portfolio has bank stocks, and you think the banks could collapse, would you not withdraw?
It will be interesting to see where this leads. I have always maintained that it will take some seemingly insignificant event to start a ball rolling that will trigger a massive crisis in the world's finances. It could be something like this.

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