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Cyprus Banking, Confidence, and Trust

Banking is a subject I know little about.  Trust is a subject I've studied.  Confidence is a subject I do know.  What we have on the table is an issue involving confidence and trust in the Banks of Cyprus.

Of late the banks in Cyprus have been closed due to the serious financial conditions in this island country. Cyprus is broke, far extended in credit, and well beyond ability for repayment without serious public pain.  At first there was to be a sur-tax on all bank accounts, then on all accounts greater than a specified amount. And so on as this has evolved.  Currently, people cannot really access their money at all.

Sure, we see street demonstrations by the citizens objecting to about everything.  But later, when they return home, they must plan for their possible futures.  What will they plan?  Who will they trust?  In what is their confidence? The bank?  The government?  The EZ?   All of these?

What this implies is that, in the blink of an eye, the confidence or trust in Cypriot banks and government has diminished to nothing.  This implies that when the restrictions are eventually lifted, even with a tax imposed, the populace will have very little trust whatever in their banking system - and by extension their government.  Confidence in the banking system has evaporated in an instant.  Cyprus will survive on cash, and likely barter for the years ahead.  While a cash-only society has merit, it is pay as you go after all, it does not lead to growth and development. 

Cash will be the name of the game.  Long term banking prospects will be drastically diminished.  What we may be seeing in Cyprus is exactly what happened in the USA after the crash of 1929.  A dissolution of trust in public institutions.  In the USA, it would be a decade and a major war to bring the banks back to their prominence. This could happen here is a thesis to pursue.   The Cypriot move paves a pathway for desparately needed revenue.  This move has been noted.
Bank sequesters could happen in Italy and Spain sooner than the USA.  My guess, just a guess, is smart money is leaving those countries by the zillions. 
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This little story indicates how quickly and how completely a shift in economic dynamics can happen.  Evolution over years or decades is not a part of this process.  This has happened on a much shorter time-scale.
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