WASHINGTON, March 28, 2013 ― Lee Buchheit appeared on Bloomberg TV today, speaking about the unprecedented events that recently transpired in Cyprus: namely stealing funds from depositors bank accounts to prop up failing banks.
Mr. Buchheit has overseen more bank and sovereign debt restructuring than any other individual in the world.
Pointing at a weaker than expected Cypriot economy post bailout, as tax collections will be lower than estimated and once (if ever) capital controls are lifted, a significant outflow of capital is expected.
Even after the bail ”in”, Mr. Buchheit describes the situation as continuing to spiral downward.
There are several reasons that these banks, which from all reports had a problem of too much cash on hand became insolvent. The primary reason was poor business decisions, being too heavily invested in Greek debt, which in their bailout deal, gave a 53.5 percent haircut to all bond holders.
Mr. Buchheit was asked if thought that the process of simply taking funds from the depositors to fund any shortcomings was to become the template for future insolvent banks (more banks becoming insolvent was treated as a given in the interview).
He said that it was not, but it was certainly a game changer, and clearly breached the last inhibition governments have had when it comes to protecting their citizens financial well-being.
When asked who he thought was next on the “chopping block” Mr. Buchheit indicated that it was a toss-up between Slovenia, Spain and Italy.
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