Financial markets could be in for a rude surprise today all because of a banking crisis on the small island nation of Cyprus. The worry is that reaction to a bailout backlash there might lead to a run on money in some other parts of the Eurozone. That’s because Eurozone financial authorities took the highly unusual and unpopular step of announcing a tax on peoples’ bank deposits. That didn’t happen during earlier bailouts for Ireland, Spain or Greece.
The fear in this case is that the tax medicine could be worse the bank sickness – sparking a new financial crisis in the 17 nation Eurozone, which is a major trading partner for many U.S. businesses. The decision to raise more than $7.5 billion in taxes on Cypriot depositors – part of a $13 billion bank bailout by Europe – also risks a political crisis. There were long lines at bank ATMs. In an address to the nation, the new president, Nicos Anastasiades, said if Cyprus’ Parliament did not approve the bailout plan there would be a “complete collapse of the banking sector” with big losses for depositors and businesses. In those circumstances, he said , Cyprus might have to leave the Eurozone. Asian and European shares fell overnight. The Euro dropped in value against the dollar and other currencies.
Last week’s blistering criticism of JP Morgan Chase by a Senate panel is leading to new questions about the safety of too-big-to-fail banks. The 307-page Senate report accused bank executives of misleading investors and regulators about the bank’s $6.2 billion loss on risky derivatives. “Be afraid,” writes New York Times award winning business columnist Gretchen Morgenson. “The financial system, thanks to dissembling traders and bumbling regulators, is at greater risk than you know.” Some members of the Senate and others are questioning whether the Dodd-Frank legislation really did make the system safe from risky behavior at large banks.
This is a big week for housing with several new reports to be released including existing home sales, housing starts, and the important National Association of Homebuilders confidence index. The numbers are likely to show construction and home sales are still in recovery mode
The auto-industry turnaround expert picked to steer Detroit back from the brink of financial ruin reportedly had tax liens on his Maryland home. The Detroit News reported Saturday that Kevyn Orr, Detroit’s new emergency financial manager, had two outstanding liens on his $1 million home in Chevy Chase, Md., for $16,000 in unemployment taxes in 2010 and 2011. Maryland state records also show that two other liens of more than $16,000 in unemployment and income taxes were satisfied in 2010 and 2011. When shown the records , Orr said he didn’t know anything about the liens. On Saturday, the bankruptcy attorney said he now is paid up on state liens. He apologized, calling it a “remarkably embarrassing” oversight.
Richard Davies Business Correspondent ABC News Radio Twitter: daviesabc