What to make of the financial crisis? My first concern is Main Street business. Forgive me, but I don't get choked up when guys with multi-million dollar salaries hit the unemployment lines. It's sad, but not too sad. Probably a good time to pick up a beach house in the Hamptons.
What about the rest of the economy? The obvious problems are companies planning stock or bond offerings or major private placements. With Lehman in bankruptcy and Merrill Lynch in transition, some companies will not be able to get the capital they had planned–right now. Virtually everyone in that position, though, will be able to shift their offering to another investment bank, but the deals will be delayed.
How about garden variety lending from commercial banks? Probably not much change, though I'm keeping my fingers crossed. Banks tightened lending standards some time back. Potential bad news: a fire-sale on Lehman's and Merrill's assets could have established very low prices for similar assets held by commercial banks, which could have triggered write-offs and inadequate capital to fund routine loans. We've dodged that bullet, at least for now.
My best estimate: Main Street business is unaffected by today's crisis. But if you're still nervous, make room–I'm nervous, too.
Good news today: Interest rates down, oil prices down. The time lags are significant before these help the economy, but they will help. On the negative side, the news about industrial production was just awful. I plowed through the detail looking for the silver lining, but I found nothing but dark cloud.
Contingency Planning: I'm all for companies doing contingency planning. The key element to consider: credit availability. A secondary element: insurance availability, if AIG has to dial back hard.