Petrol & Cyprus

Let me explain why the Cyprus thing has me spooked a bit.

As of tonight (early Monday morning, a good 7 hours+ before most main markets open up), EURUSD has fallen around 120pips on open. On twitter I'm seeing a bizarre few lines on banter about the Cyprus deposit snatch. A surprising number of people take the "It's only a few %" line. I'm not going to argue that point here. A more significant sample of the fiscal heads I follow are talking exclusively about "calming the markets". Which is understandable. But not why I'm a bit worried.

Here we go...

In the UK recently, we had a petrol shortage. The funny thing was, there was no shortage of petrol. I don't pretend to understand the social mechanism that went on behind this. But simply the fear that there might be a petrol shortage was enough to prompt everyone to buy petrol, and that caused a petrol shortage. As it turned out, the tanker driver strike never happened. There was no need at all for the shortage to happen by logical, reasonable standards.

It seems to me a lot of fiscal heads are doing what I did with the petrol shortage. Looked at quite logically ... "What's the fuss about?", or at worst, how to calm the markets in the next week or so. But that's not the problem with bank runs and petrol shortages.

You don't need need an actual risk of loss for people to take money out of the bank. All you need is a certain critical mass of people to do it for whatever reasons they may have, even if wrong. Like petrol queues, people see and hear of the withdrawals, so they do the same.

That's the angle that's got me a bit worried on this one. I don't see the powers that be factoring in what a mass of people and a mild bit of panic can snowball in to. Maybe I'm reading it wrong. Maybe they are safe in the knowledge that they can quell any public momentum via media control and running cash between banks behind the scenes. I don't know. But it looks very risky to me.