Is Cyprus Having A “Lehman Brothers Moment”?

Cyprus lawmakers may have rejected the bank account tax, but the truth is that the financial crisis in Cyprus is just getting started. Right now, the two largest banks in Cyprus are dangerously close to a meltdown. If they fail, depositors could end up losing virtually all of their money. You see, the banking system of Cyprus absolutely dwarfs the GDP of that small island nation. Cyprus is known all over the world as a major offshore tax haven, and wealthy Russians and wealthy Europeans have been pouring massive amounts of money into the banking system over the last several decades. Yes, those bank deposits are supposed to be insured, but the truth is that there is no way that the government of Cyprus could ever come up with enough money to cover the massive losses that we are potentially looking at. This is a case where the banking system of a nation has gotten so large that the national government is absolutely powerless to stop a collapse from happening. If those banks fail, depositors may end up getting 50 percent of their money or they may end up getting nothing. We just don't know how bad the damage is yet. And considering the fact that many of the largest corporations and many of the wealthiest individuals in Europe have huge mountains of cash stashed in Cyprus, the fallout from a banking collapse could potentially be absolutely catastrophic.

So Cyprus needs to come up with some money from somewhere in order to keep that from happening.

Basically, there are three options at this point...

1) Even though the bank account confiscation tax was voted down today, there is talk that it could come back in another form. This is really the only place inside of Cyprus where enough money can be raised to bail out the banks.

2) Cyprus could go back and beg the IMF and the EU for money, but the IMF and the EU have already said that they want depositors to share in the pain.

3) Cyprus could get the money that they need from the Russians. This will be discussed in more detail later.

A lot of people will see the headlines proclaiming that Cyprus has voted against the wealth tax and think that everything is going to be okay now, but that is very far from the truth.

The reality is that this is only the first move in a very complicated chess game. The problems for Cyprus to zero .

Chase bank experienced a problem Monday that had customers scrambling to figure out where their money went.

JP Morgan Chase said it hadn’t been hacked but was having a problem “related to an internal issue” as customers found their accounts showing zero balances.

Some customers shared their frustration on Twitter and showed screen shots of zero balances.

How would you feel if you suddenly discovered that you had no money in the bank?

Most Americans just assume that their money will always be there because their bank accounts are "guaranteed" by deposit insurance and by the full faith and credit of the federal government.

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But that is exactly what the people of Cyprus thought too, and look how that turned out.

It would be hard to overstate how dangerous the situation in Cyprus is. Yes, their nation is very small but their banking system is absolutely huge.

If the banking system of Cyprus fails, it could be a "Lehman Brothers moment" for all of Europe. At this point, the entire European banking system is leveraged 26 to 1, and once European banks start to fail they could start falling like dominoes.

There is also a very strong possibility that Cyprus could be forced to leave the euro, and if that happens everyone will be wondering who will be next to leave the common currency.

So don't think for a second that the crisis in Cyprus is over. The banking meltdown is just getting started, and the consequences could end up being far more dramatic than any of us could possibly imagine.

Written By: Michael T. Snyder