First, They Came For The Cypriots...
Rule Of Law: Markets tumbled after Cyprus and the EU said they might tax private bank accounts to pay for a bailout. Arbitrary property grabs are a new low and a bad precedent in this crisis. Worse still, it can happen here.
As bad as tumbling markets around the world are, they seem to be the only signal strong enough to catch the attention of Europe's otherwise unaccountable bureaucrats who have long since learned to ignore street riots.
As stocks fell from Tokyo to New York, Europe's leaders are scrambling to say they had nothing to do with the cause - the shutdown of all Cyprus banks and ATMs for at least three days and the expropriation of a large chunk of each now-captive account, as a "tax" to pay for Cyprus' $13 billion EU bailout, Europe's fifth.
Cyprus Prime Minister Nicos Anastasiades bitterly asserted he had been "blackmailed" by the EU and the International Monetary Fund to go along with the idea on Saturday, or there'd be no bailout. Cyprus' central bank chief Panicos Demetriades said the same thing.
Aside from the fact that no fiscally responsible country should need a bailout and the roots of Cyprus' financial crisis is based on long-term big-spending government and low-information voters, the bank shutdown nevertheless sets an ugly precedent rooted in the growing arrogance of EU power.
Until now, tax hikes and haircuts for bond-holders have been how Europe's bailouts have been handled. (And, among the countries that never want to be in that position again, such as Estonia and Latvia, spending cuts.) At least markets could recognize such solutions and price in the risk accordingly.
But confiscating savings in banks and denying people access to their property without warning is something entirely different - and will do great damage to citizens' willingness to save, invest and build wealth.
Oh sure, the rationale was that most of the depositors were shady foreigners, particularly from Russia, laundering money. But the photos of Cypriots banging on bank doors and protesting, much as the people of Argentina did when the same thing happened to them in 2002, tells a different story of human suffering.
The expropriation of the tiny country's savings may have seemed like an easy test case for the EU because the population is small and some of the depositors are rich and unsympathetic, but the blowback will hit savings and investment - and future economic growth - all over Europe.
Worse still, it could catch on here.
Already Congressional Democrats are plotting the expropriation of Americans' private 401(k) and IRA retirement savings accounts in favor of "a guaranteed income." If bank accounts can be casually expropriated in Cyprus to pay for big-spending governments and bailouts, there is no reason a nice slice of the $19 trillion in retirement accounts can't get the same treatment.
If it happens, it will signal the end of individual freedom and the return of feudalism.
Frederick Hayek had a phrase for this: "The Road To Serfdom." Let's hope there will be more than just markets to make this state theft of private property stop.