Second, as stupid and as bungling as the European authorities are, they can read the papers too. They know that the brinksmanship isn't about Europe, it's about a banking system that is much bigger than Cyprus but still much smaller than all of the other hot spots that we have seen in Europe.
Lehman was a surprise on multiple levels. First, it seemed at the moment that Lehman was going down that a Korean institution was going to throw them a lifeline.
Two, Lehman was the biggest bank in the world. That's right, the biggest. We don't talk about it like that, but when you add up all of the accounts that were levered, all the balance-sheet blow-ups and all the false financials that hid bad loans, you had something nobody saw coming.
Maybe nobody saw Cyprus coming here. But they did see it there and the authorities have made a determination that it won't spread to other countries. You may think they can't contain it. But while they should have caught Cyprus a long time ago, we now know they have the means to control things. If they can control gigantic bond markets and get interest rates down from 7% to less than 5% from totally bankrupt countries, they can cordon off Cyprus.Now here's something that you need to know about next week, based on what happened this week in Cyprus: the same people who are smarter than I am are not going to let this Lehman idea go. They are going to dig in their heels. They are going to try to get people to panic here no matter what. They don't care that we have a strong domestic economy, strong spending and strong housing. They don't care that we have managed to separate ourselves. They want us linked because they sense that they can't take the market down any other way. After the sequester didn't take us down, after the fiscal cliff debacle didn't take us down, after the tax increase for the wealthy didn't take us down and after the election didn't take us down, they are running out of things to use to knock the market down ... for now.
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