Why the Cyprus Bail In Is a Bigger Deal Than You Think

From finance.yahoo.com

Why the Cyprus Bail In Is a Bigger Deal Than You Think
By Henry Blodget

You can be forgiven for thinking that you don't need to give a hoot about what's going on in Cyprus.

After all, it's just a little island somewhere in the Mediterranean.

But what's going on in Cyprus could actually matter — not just to the rest of Europe, but to the rest of the world.

Here's the short version of what's happening:

Some of Cyprus's banks, like many banks in Europe, are bankrupt.

Cyprus went to the eurozone to get a bailout, the same way Ireland, Greece, and other European countries have.

The eurozone powers-that-be (mainly Germany) gave Cyprus a bailout and insisted that the depositors in Cyprus's banks pay part of the tab — a startling condition that has never before been imposed on any major banking system since the start of the global financial crisis in 2008.

The deal did not touch the bondholders. Why the depositors? These are folks who had their money in the banks for safe-keeping.

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