The Real Deal With Cyprus

NEW YORK ( TheStreet) -- The Cyprus bailout story wasn't supposed to be about Cyprus.

It was supposed to be about Russian gangsters using Cyprus as a tax haven. The story behind Cyprus has been lost in translating the story about Cyprus.

Fact is, the world's wealthy have created an economic system separate from the ability of governments to tax, and they use it to maintain control of the world's economy in fewer and fewer hands. In this system, money is money, and laws lack teeth. Therefore, charges of tax avoidance against Amazon.com ( AMZN) by U.K. politicians (see this article The Guardian) is treated the same as Russian mafia money, Arabian petrodollars and Latin American drug dollars.

The question here isn't whether small depositors are safe in Cyprus or Madrid or Peoria. It's whether governments have suitable means to control the ultra-wealthy, regardless of the source of that wealth. And by extension, whether those occupiers of the One Percent and their shell corporations are part of the global social contract.

Most of these tax havens, by the way, are loosely attached to the U.K., which once had a protectorate over Cyprus, as this page at Cypnet.co.uk describes.

Wikipedia notes that the Island of Jersey, where Amazon claims to do its European business, is an English Crown Dependency. The Cayman Islands is a British Overseas Territory with Queen Elizabeth II on its money.

The nominal independence of Jersey and the Caymans are a convenience to the world's wealthy. They are under the protection of the U.K. Cyprus' standing as a tax haven is, I believe, descended from this British heritage.

According to a Moody's report quoted by RT.Com, the Russian news network, Russians have $31 billion in Cyprus banks, almost 30% of total deposits. The money is there because Cyprus has a corporate tax rate of 10%, compared with Russia's 20%.

It's also there, as Douglas Gartman implied on CNBC, because Russian mobsters use Cyprus to launder their money. "You don't mess with the Russian mafia," he said when interviewed about the crisis.

Despite all this money, Cyprus banks are broke. As Philip van Doorn wrote for us, they need about $13 billion, but they don't have bondholders who can take the hit. The European Stabilization Mechanism wants more than half its money down, roughly $8 billion, and the "tax" was designed to fund that insurance.

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