In the Financial Times, Martin Wolf – whom I had to check the background of after reading the article and surprisingly found that he was one of the leading thinkers of the world wrote today (20 March 2013) that:
“Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.” (1)
Mr. Wolf, in his argument above has been missing a fundamental point, the depositors to the banks are not investors to the bank. They are not individuals who share the risk and the profit of the bank, as would be the case for shareholders. In that sense, the banks are much more similar to, from the perspective of the depositors, to vaults than they are to “investments”.
On a second point, Mr. Wolf, by claiming that this is not theft, he basically exclaims that he does not know what:
(i) theft;
(ii) taxation; or
(iii) property right is.
For starters, theft is taking something which is not yours without the consent of the owner. Depositors deposit their own money to the bank, for it’s safekeeping and they deposit their money to the bank in return of the bank making a promise to give them something - which is something so called interest- back. Banks are basically not the owners of what they hold, but rather are only authorised to make use of the deposits until the owner of that money wants his money back!
Secondly, in the case of modern taxation, a person would be subject to a tax, if there was a rule giving rise to the tax before the action giving rise to the tax occurred. The good old slogan “No taxation without representation” should at least assist understanding at least where this story is going. In this instance, the so called tax which burdens the depositors to bail-out the banks in Cyprus was a one off levy which basically said “oh, here is some cash deposited in the banks, we can use this money to bail out the banks” even if you were risk taking shareholder, the company in which you were a shareholder would not be able to make use of the funds as it pleases, it can do so up to the legal reserves. Basically, naming something a tax (2), does not make it a tax, it just makes it theft confirmed by the government/parliament.
As to the property rights, I am much surprised to hear this from an Englishmen, where property rights have been historically upheld so vigorously. Very plain and simple, people deposit their money to an account provided by the bank. Keeping the money in the bank does not make it bank’s money, it still is the depositor’s money. If the bank takes the money and does whatever it wants (with or without the permission or the directive of the government), that will be theft: theft, with or without the consent of the government.[US]
(1) http://www.ft.com/cms/s/0/ae1f144c-8fe5-11e2-ae9e-00144feabdc0.html#axzz2O4FefS9M
(2) Contrary to what the US Supreme Court said in its June 2012 5:4 Obamacare ruling.
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