The role of the Troika in bailing out governments and banks is nothing new, but the solutions put forward by EU leaders to improve the Cypriot crisis seem to be founded on little foresight, and without regard for the tragic mistakes of the past few years.
Unless you're a student of history or are planning a Mediterranean vacation, you may never have given the island of Cyprus much thought. Then suddenly, it dominated the headlines. What does a banking crisis in a small and far-off land mean to you?
Could it happen here? It's unlikely that in America you'd see that kind of outright grab on the part of the government, for any reason, (unless you think back to the gold confiscation of the 1930s). And in America, we're very aware of our deposit insurance limitations.
The debacle in Cyprus is far from over, but it's already taught us some very important lessons. We've seen, for example, that the world's financial leaders insist on clinging to the principles of austerity economics even after they've failed over and over again.
With their southern partners' economies collapse resulting in these nations being unable to purchase many imported goods, Germany has decided to pursue the only assets left to be had, namely the funds remaining in their banks.
After marathon and heated discussions, agreement was reached on a new rescue package for Cyprus. Compared to what had emerged a week earlier, this is a better technical outcome -- both in what it contains and in what is left out.
Unless Americans step up the way Cypriots did and demand real regulation, as well as send the message that they don't trust Wall Street by moving their money to community banks and credit unions, they can bank on being bilked. Again.
The Cypriot banks did what all banks do. They gambled. They borrowed money by taking in deposits as well as selling bonds, promised to repay, and then invested in assets they were sure would pay off. These assets included lots and lots of Greek government bonds.