Model behavior

The recent bank bailout in Cyprus is a microcosm of the way capitalism works. To sum it up briefly, the banks in Cyprus took in lots of money from Russian "tycoons" and made a serious of risky investments. When the investments went belly-side up the banks were left holding the bag. Without the resources to cover their obligations, the banks went to the government with their hats held out asking for money. The government then held out their hats and begged the EU to do something.

That something ended up being a scheme by which the banks will be recapitalized using the deposit money of those who have more than 100,000 euros in the bank. The government estimates that the levies may equal almost 40% of the deposits.

Capitalism thrives on one simple model - the privatization of gain and the socialization of loss. As long as that model is in effect the capitalists will thrive while the majority of the populace will suffer.

The banking crisis in Cyprus wasn't caused by those who deposited their savings and their retirement accounts with the banks. The banks' executives made the decisions on which investments to make. They chose to make risky investments while money was cheap. The government failed to oversee the operations of the banks.

You see the government decided to look the other way as Cyprus became something of an offshore haven for the wealthy folks across the continent. Awash in cash, and unencumbered by regulation, the banks gambled away their money. And, when the bills came due, they asked the government to bail them out.

The bankers got their money. They were paid handsome salaries and bonuses to gamble with other people's money. Developers in Europe got their money. They were the recipients of much of the largesse. Depositors got a handsome rate of interest as a way of enticing them to put their money at risk. The depositors had no say in the operations of the banks.

But instead of going after those who profited by running the banking system into the ground, the government has spread the loss among a broad swatch of the population. So, private actors profited by ruining the banks while the public has to pay the price for their thievery.

That's the privatization of gain and the socialization of loss in a nutshell. And those who benefit from the system see absolutely nothing wrong with the model.

Do you?