3 lessons we can all learn from Cyprus' financial crisis

Cyprus' leaders are grasping for a new bailout plan to save their country from financial collapse. After Cypriot lawmakers rejected a $13 billion European bailout because it included a controversial tax on savings accounts in Cypriot banks, Russia, where many of the banks' wealthiest depositors live, rejected the Mediterranean island nation's pleas for help. The one-time levy would have raised $7.5 billion that Europe is demanding to help fund the rescue. Now the European Union is threatening to let the country go under if it doesn't come up with a new plan by Monday.

The country's leaders are determined to find a solution. "The coming hours will seal our fate," a government spokesman said. "The country must be saved." Whatever happens, Cyprus might be serving as a cautionary tale that, rather than threatening to hurt the U.S. economy, can teach Americans valuable lessons. Here are three of them:

1. Don't overestimate your bargaining power

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"Cyprus will pay dearly for its sins," says Hugo Dixon at The New York Times. This is a country that keeps making the same mistake. "The Cypriots seem congenitally inclined to overestimate their negotiating position." They rejected the United Nations' plan in 2004 for uniting their island, divided in two since a 1974 Turkish invasion. The last Communist government did nothing to shore up Cyprus' finances, thinking itself immune as "the crisis in Greece threatened to swamp Cyprus." Then the new center-right president, Nicos Anastasiades, "managed to turn a crisis into a disaster" by thinking he could go along with the plan to impose an automatic 6.75 percent tax on insured depositors.

2. Never overreact to other people's problems

"Don't let the recent events in Cyprus scare you," says Helaine Olen at Britain's Guardian. "Misleading pundits" are all over our TV screens shouting, "Today: Cyprus. Tomorrow: The world." That's ridiculous. When you hear scare mongering on TV, change the channel.

3. There really is no such thing as a free lunch

"Even if you have zero exposure to the euro, the sad tale of Cyprus teaches investors about important old and new realities," says James Saft at Reuters. The tiny euro nation off the coast of Greece "has been a favored haven for billions of euros from mostly Russian investors," but now it's facing a financial meltdown. Some haven. The lesson here is that "there is still no free lunch," and even if an offshore haven saves you money in taxes, it might wind up costing you dearly in the end. Investments can be high-reward, or low-risk — but they can't be both. Depositors in Cyprus' banks learned that one the hard way. "It would behoove international investors to take note as well."