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Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's episode of the PERI report with Gerry Epstein, who now joins us from Amherst, Massachusetts, where he is codirector of the Political Economy Research Institute, or PERI.Thanks very much for joining us again, Gerry.PROF. GERALD EPSTEIN, CODIRECTOR, PERI: Thank you, Paul.JAY: So what do you got for us this week?EPSTEIN: Well, this is another week of financial follies of capitalism. I've been looking at what's going on in Cyprus, and it's really quite amazing. So Cyprus, part of the European Union, part of the Eurozone, needed another bailout, because its financial system, which they were trying to portray--they were trying to build up, like the financial system in Iceland or Ireland, as this great financial center. It of course went bust as a result of the financial crisis. And the European Union has had to give it some loans in the past, and now it's time for another bailout. But the Germans were balking at giving the full $17 billion that the Cyprus government had needed, and so at the last minute they decided to, well, we'll just give you $10 billion, and then we'll put a tax on bank deposits. Well, guess what? When you threaten to put a tax on bank deposits, what do you think depositors do? They line up and try to take their money and run. And this has led to financial chaos not only in Cyprus, but also has now spread to other parts of Europe.JAY: And they had some phone call on Monday, today, I guess. Has that happened yet?EPSTEIN: Well, the parliament in Cyprus has to approve of this, has to approve it, and they were going to have a vote today. But now they've postponed the vote till tomorrow. There's a bank holiday--they've called a bank holiday so people can't actually go into the banks to get their money out, but they can go line up at the ATM machines and take their money out until the cash runs out, which it's doing. But stock markets are now tanking, or did tank this morning in Japan, and lost 2 percent in Japan and lost 1 percent in Europe, and I don't know what's happening on Wall Street at the moment. But this has just shown once again how precarious the whole Eurozone is and how contradictory and, I think, in some ways asinine the policies are of the European Union and others in the so-called troika, including the IMF and the European Central Bank, as they're trying to deal with this crisis. That is, the more they push on austerity, the more contradictions they create. And this is threatening to spread contagion around Europe again. JAY: Now, if I understand it correctly, the Russian depositors have something like--what is it?--EUR 30 billion of deposits by Russians in Cypriot banks, and now they're, as you said, heading for the hills. They want to pull out the EUR 30 billion. On the other hand, the Eurozone wants Cyprus to start paying--what is it?--some kind of fees to the Eurozone to deal with the bank bailout. As you say, it's complete chaos.EPSTEIN: That's right. I mean, one of the first rules when you're trying to protect a financial system is you don't want to create bank runs. This has been known for decades, if not centuries. And the thing is, that's right, one of the ways in which the Cypriot banking system was trying to make a lot of money was by letting it be kind of a laundry for Russian money of all kinds. And so there's many millions of billions of euros of Russian money in there. And so one of the excuses for levying this bank tax--this deposit tax, excuse me, is to try to make the Russian money launderers or money depositors pay some of the tax. The problem is, there was a proposal to limit this tax on deposits above EUR 100,000, so to get to the--to tax big depositors. But president of Cyprus, the new president of Cyprus didn't want there to be high enough of a tax rate to just limit it to deposits over EUR 100,000. I guess he was trying to protect his rich friends. So they decided that in order to generate the $6-7 billion they needed to satisfy the Germans and the Dutch and the Fins, they'd have to put some of the tax on small depositors. So there's a 6.5 percent tax on deposits below EUR 100,000 and a 9.9 percent tax on deposits above EUR 100,000. So it's a very--honestly, it's a very regressive tax, relatively regressive. But the main problem is it's not a tax you can really implement without destroying the banking system. And so now if you're sitting there in Spain thinking, well, Spain's in trouble financially with the European Union, or Italy or Portugal, you're thinking, are they going to start coming after our bank deposits next? And so the fear is that this is going to generate bank runs in the southern parts of Europe as well.JAY: Alright. What else have you been looking at this week?EPSTEIN: Well, I think the point I wanted to make about this example is that there's no good way, there's no safe way to implement this austerity program. And the only way that you can deal with a situation like this is to impose the costs on those actors that have really created the problems. And in the case of the United States, this past week there was a Senate committee hearing on JPMorgan and the famous London Whale trades, where Bruno Iksil, the London Whale, a trader, lost over $6 billion and maybe more in trades last year, and the bank tried to cover up these trades. And this information about how they tried to cover up the losses in the trades has--really came out in a Senate report that was revealed by Carl Levin's committee last week. And it's pretty astonishing what happened. As they were making these losses, they tried to change all of the formulas to try to hide the losses. They tried to change their formulas for risk management to try to make it seem like they were less risky than they were. When the regulators came to try to get some information, JPMorgan, Jamie Dimon and the others basically said, you don't have any right to this information. And the Comptroller of the Currency that let all the problems in 2006, 2007 to go by without trying to do anything about it just said, okay, if you won't give us the information, that's fine, not to worry. So we see that the follies, the financial follies of financial deregulation and austerity are still with us on both sides of the Atlantic.JAY: Alright. Thanks for joining us, Gerry.EPSTEIN: Thank you.JAY: And thank you for joining us on The Real News Network.
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.
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