tag:blogger.com,1999:blog-5882645467378797266.post8267295497599539346..comments2023-07-17T11:55:51.363+02:00Comments on ObservingGreece: Go ahead, EU-elites - continue to ignore advice!kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-5882645467378797266.post-67032948692946107652013-03-21T13:34:45.646+01:002013-03-21T13:34:45.646+01:00A CD is nothing other than a time deposit in a ban...A CD is nothing other than a time deposit in a bank. When one makes a time deposit in an Austrian bank, one gets nothing other than an account statement showing it. In the US, one gets a formal Certificate of Deposit for it.<br /><br />The difference is that a CD is a security which can be sold (a bank account balance cannot be sold). If you make a 1-year time deposit with an Austrian bank but you need the money after, say, 6 months, the bank - if things are fine - will agree to an early dissolution of the time deposit. That will cost you a fee but it's not out of the world. If the bank has a liquidity problem, it will not even entertain your request for early dissolution.<br /><br />If your 1-year deposit is a CD, you can sell it any time you want to. You may not get the price you want, but you can sell it.<br /><br />Suppose you have a 1-year CD and, after 6 months, the bank is getting into trouble. You want to get out and seek a buyer for your CD. Your buyer may say that, in view of the risk, he won't pay more for it than 50 cents on the Euro. You may say that 50 cents now is better than perhaps zero cents after 1 year.<br /><br />If the bank survives, the buyer of your CD has doubled his investment. Who has paid for his profit? Not the bank. You (or as they say 'the market') have paid for it. But you did that voluntarily.<br /><br />I have just read this astounding news where the Cypriot Church has allegedly said that it would use 'all its considerable wealth' to support the state by buying CDs issued by the state. Now, if the Church's considerable wealth is currently invested outside of Greece, that would indeed be an Act of God, or something close to it.<br /><br />If, however, the Church currently has its funds in Cypriot banks, it would be a smart move. They would exchange the risk of Cyriot banks (if they fail, the Church's deposits would evaporate) into the risk of the Cypriot state. Maybe not a perfect solution for the Church but a lot better than having all the money in a bank which is out of business.<br /><br />Here closes the circle: the state would put the money which it gets from the Church in exchange for CDs into the Cypriot banks. The bank's liquidity is indifferent to that: what it pays out to the Church, it gets back from the state. The bank now has the state (instead of the Church) as a depositor and the Church now has the state (instead of a bank) as its counter-party. kleinguthttps://www.blogger.com/profile/12491174042954678023noreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-39515557682736961842013-03-21T12:27:20.278+01:002013-03-21T12:27:20.278+01:00I like the plan. I'd never heard of "cert...I like the plan. I'd never heard of "certificates of deposit" before, in fact. Turning highly mobile dodgy capital into long-term investors in cyprus.<br /><br />Err. I hesitate to mention one practical difficulty. Some of people whose deposits suddenly turn into Certificates of Deposit are going to be russian or ukrainian mafia. <br /><br />They might take a painful revenge on the luckless cypriot politicians. Richard Bourkehttps://www.blogger.com/profile/15510809612151756954noreply@blogger.com