The economic repercussions of having people feel that their money is not safe
in banks can be catastrophic. Banks are not just warehouses where money can be
stored. They are crucial institutions for gathering individually modest amounts
of money from millions of people and transferring that money to strangers whom
those people would not directly entrust it to.
Multi-billion dollar corporations, whose economies of scale can bring down
the prices of goods and services — thereby raising our standard of living — are
seldom financed by a few billionaires.
Far more often they are financed by millions of people, who have neither the
specific knowledge nor the economic expertise to risk their savings by investing
directly in those enterprises. Banks are crucial intermediaries, which provide
the financial expertise without which these transfers of money are too risky.
There are poor nations with rich natural resources, which are not developed
because they lack either the sophisticated financial institutions necessary to
make these key transfers of money or because their legal or political systems
are too unreliable for people to put their money into these financial
intermediaries.
Whether in Cyprus or in other countries, politicians tend to think in short
run terms, if only because elections are held in the short run. Therefore, there
is always a temptation to do reckless and short-sighted things to get over some
current problem, even if that creates far worse problems in the long run.
Seizing money that people put in the bank would be a classic example of such
short-sighted policies.
Read More: Thomas Sowell
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