Transparency–making everything clear to the public–is the key to good government. Cyprus is the latest case.
Rich investors who wanted to evade scrutiny, judging from Krugman, evidently saw Cyprus as the place to hide their presumably ill-gotten gains. Now, they will apparently be penalized. Both processes are wrong. It is wrong to let the rich steal money and hide it; one should be required to demonstrate that one’s deposits are legitimate. But it is also wrong arbitrarily to change the rules, to break the customer-banker contract, after the deposit is made in order to take those funds (unless the depositor is convicted of fraud).
Transparency is the key to avoiding the whole mess: transparency in where a depositor’s money comes from and transparency in defining emergency conditions under which the government will appropriate those funds.
In 2008 U.S. taxpayers were cheated to pay off irresponsible billionaires. Under the terms of the new Cyprus deal, evidently the rich will be cheated to protect the deposits of the average depositor. That may be an improvement, but it still sends a serious message that one cannot trust the government or the banking system, a very dangerous message that weakens democracy and provokes instability.
Cyprus should be seen as the financial canary in the mine warning of a potential explosion unless governments become more responsible- about how they regulate the financial system, and the key to that is to make both banking and regulation more transparent.
Those are the aspirations of a citizen in a democracy, but reality is less democracy than plutocracy, as shown by the examples of Obama’s outgoing and incoming secretaries of the treasury:
Before joining the Obama administration, Lew worked at Citibank, and in 2007 he took over the bank’s Alternative Assets program—which lost most of its assets as it bet on the downfall of the housing market. In 2009 Lew left Citi to join the Obama administration after pocketing a $940,000 bonus, just as Citi was receiving a $45 billion bailout and Treasury Secretary Geithner was administering a stress test to the bank. [Lloyd Green on DailyBeast.]
Transparency is the last thing the plutocrats and their political lackeys want.