Cyprus…Baaaa!

Most of us agree that too many people are in too much debt. Additionally, we see eye to eye regarding sovereign debt…countries from Greece to Ireland to Spain and yes, even the good old US of A have accumulated too much debt. A recent poll showed that 55% of Americans believe that our national debt is a near-term important issue, and I submit that this majority is tiring of our own legislators kicking-the-can-down-the-road time and time again. I must note here that there are a few people like Paul Krugman, Nobel prize winning journalist-economist, who appear to believe that in the end there may be no such thing as too much debt. Nevertheless, endless arguments occur daily at kitchen tables, around office water coolers, in state legislatures and at DC congress sessions about whether or not government programs are necessary or not, versus “too many rich people have too much money.” Today’s bank crisis in Cyprus is illustrative of the debt crisis in the European Union (EU) and even here at home.

Last week, the EU (Germany) asked Cyprus to pay back some of their sovereign debt. Cyprus government officials offered the solution of taxing bank deposits, both of every day citizens and of “the rich.” These rich were quickly identified by the financial press as nasty Russian billionaires who had gained their wealth ill-advisedly. The battle lines were drawn and the opponents were re-identified: the EU (Germans) vs. Cyprus citizenry & the wealthy Russians. Stranger bedfellows had seldom been formed! Cyprus’ congress met and interestingly enough, no one voted for this scheme. There were a lot of no’s and many “abstentions,” but no yes’s for the proposal to tax bank deposits. I wonder how many of the legislators received rather unpleasant night-before phone calls urging a “nyet” vote on this deal?

Let no person allow this confrontation between the EU and the Cyprus citizenry & rich bank depositors go unnoticed. Make note of this week as the beginning of a new discussion about the question, “Can it happen here?” The never-ending continuation of the Europe debt crisis should not be taken lightly by citizens in other European countries or in the United States. Until an answer to who-how-when will countries pay back the debt caused by over-promising benefits to the public, and each nation’s legislators decide how to pay for future promises…as Sonny & Cher once sang, “The Beat Goes On.”

I am reminded once again of the response the talking heads had to the 2007-8 sub-prime mortgage blow-up. Everyone tried to slough it off and reported that these type loans were insignificant as a part of the total mortgage marketplace. No one noticed or reported that a new elephant, derivatives, had his nose in the debt tent. And I remember the eventual impact these derivatives had on financial markets, economies and jobs.

Let’s all hope that Cyprus’ liabilities are insignificant to the EU and the rest of the world sovereign debt totals, as most of the financial media are reporting this week. And let’s pray that there isn’t a run on their banks that oozes into the rest of European banks and crosses the Atlantic. While we are hoping and praying, let’s not stick our heads in the sand and pretend that this current Cyprus debt crisis has no bearing on the rest of the world. I admit that this may be the umpteenth sheep crying wolf once again….Baaaa! Some day the wolf will eat the sheep and no one will be there to save it.