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EDITORIAL: Grand theft Cyprus

Obama eyes a similar raid on 401(k) accounts

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Butch Cassidy became a household name in 1889 after he galloped off with a $20,000 unauthorized withdrawal from the San Miguel Valley Bank in Telluride, Colo. In today's dollars, that's around $500,000. Modern thieves rely on stolen passwords and wire transfers to make bigger scores, such as the trio who were close to pilfering $300 million from Sumitomo Bank in London before they were caught. These bank robbers were thinking small. The government of Cyprus was thinking big, and pulled off a $5.5 billion heist.

As part of a bailout deal with European Union leaders, Cyprus helped itself to 40 percent of all bank accounts greater than $130,000. This shocked and dismayed public and private investors, who couldn't move fast enough, and their assets were frozen. Before that, the small Mediterranean island's financial institutions were highly rated, attracting deposits from all over the world. The Banker magazine said the Bank of Cyprus was one of only 18 financial institutions in the world worthy of a AAA- score. But something was rotten in Denmark, and particularly in Nicosia.

International praise masked balance sheets overflowing with debt. The banks were overextended and saddled with portfolios of poor investments. They ask for the modern miracle "cure," a bailout, to prevent bank runs and stop panic from spreading to the rest of Europe. Rather than allowing banks to proceed into an orderly bankruptcy, where debts could be restructured or purchased by other institutions, the Eurocrats protected the men and women who made the bad decisions. Better to loot the accounts of the customers.

Applause for the great bank robbery echoed throughout the Continent. European finance ministers called it a needed step in "restoring sustainable growth and sound public finances over the coming years." German Chancellor Angela Merkel declared the pilferage "a fair division of the burden." Instead of restoring faith and confidence in the financial sector, the robbery inspired others to think of robbing the innocent.

The sorry episode appears to have taught President Obama the wrong lesson. His administration has introduced a proposal in his 2014 budget to cap how much money can be saved in a 401(k) retirement account. The White House argues that the scheme will allow depositors to fund their retirement savings to a "reasonable" level, and anything saved beyond that level would be subject to a Cyprus-style tax. He's got an eye on more than $3 trillion in targeted assets.

That's dangerous, because the White House and the Cypriot government share the same faith in the Keynesian dogma that prosperity comes from spending and not from savings. Had more Americans put their money into IRAs or other deposit vehicles rather than overpriced real estate, the housing bubble would not have delivered such a blow to the worldwide economy, and America would certainly be more prosperous today. Punishing those who are wise enough to put money away for a rainy day will not help the economy get back onto a solid footing. Butch, Jesse, and Bonnie and Clyde were just ahead of their times.

The Washington Times

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