We interrupt this program
April 1, 2013
by Brian Wolf

Just in case you’ve been paying more attention to March Madness than current world events, let me help you out a little. Think of this as a quick little commercial break to your March Madness basketball brackets.

The banking system in Cyprus is imploding. Now, I know what you are probably thinking. Cyprus? Who the heck is that, and why would I even care? Although Cyprus is a small country over in the Mediterranean, by Greece and Turkey, it is currently going through some troubles that could have very lasting effects on all of Europe.

The only reason you should care about this at all is what I refer to as “trial balloon politics.”

You see, the banking system in Cyprus is a mess, and they need to borrow money to keep afloat. Since they are part of the Eurozone, they went to get the money from them. Now, the good folks in Europe are getting sick and tired of bailing out countries within the Eurozone, so they decided to try something a bit different. They told the Cyprus banks that they would loan them the money only if the banks deducted a percentage of each bank account holder’s deposits to pay back the loan.

In other words, everyone who has money in a Cyprus bank would see a withdrawal out of their account to pay for the latest round of loans, even though they didn’t do anything to contribute to the bank’s problems!

Well, the Cyprus people heard about this and a major run on the banks ensued. The politicians reacted by closing the banks. At this point, a couple of weeks later, the banks have just opened up again for business.

Again, why should you care?

Notice what European leaders are doing here. They are floating a “trial balloon” to see if they can get away with this. If they can, you should expect to see them use the same tactics every time a country’s banking system goes kaput in the future (are you paying attention Spain?). And, once they start doing something in Europe, the rest of the world will take notice and potentially follow.

The bottom line is this – if they get away with this in Cyprus, it could change banking throughout the world. People will lose faith in banks (rightfully so), and the law of unintended consequences may rear its ugly head. Let’s hope Cyprus finds their way through this storm. Let’s hope that clearer heads prevail. Let’s hope the big 10 can win it all . . .

Now, back to your regularly scheduled basketball game.

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