Pay No Attention to The Man Behind the Curtain

Like the new geysers appearing in Yellowstone due to forty square miles of magma starting to poke through the Earth’s crust the great caldera of a trillion dollars in bad debt is starting to make itself felt in the sudden demise of former Wall Street giants such as Lehman Brothers.

Twenty something employees in t-shirts and shorts stormed their offices last night afraid that their personal effects would be locked within by federal regulators causing security guards to call for police back up. Meanwhile Lehman Brothers CEO Dick Fuld contentedly counted his money, $22 million in bonuses he was paid last March, within his 14 million dollar Florida vacation home, which he paid for in cash. Meanwhile the State of Florida’s pension system lost $322 million in Lehman holdings.

Like the caldera under Yellowstone the trillion dollar time bomb is threatening to blow away the entire financial planet. There I said it. It’s not like this hasn’t been patently obvious to anybody with half a brain and an associates in economics from a community college for over a year now. This has been discussed in the financial community, in banking circles and at university investment committee meetings for months and months.

So what does this all mean? It means what small and medium sized businesses with good financials and owner credit ratings have been puzzling over lately. Names, “Why does the bank not like me anymore?” They have seen perfectly good collateralized loans with no late payments suddenly capped at what is owed. They have seen bankers explicitly referring them to “alternative financing options”. They have seen any and all expansion plans that don’t involve internal funding thrown on the proverbial scrap heap. And with the inelasticity of prices out there in the market they are asking “What expansion plans?” How can you expand when all your customers are debating your price structure like Berbers dickering over rugs in a Moroccan bazaar?

Are we going to have a recession? Are we going to have a depression? What do you think it means when presidential candidates start complaining that significant regulations have not been enacted since 1939? Does this give you a clue?