News of Lehman Brothers’ collapse is quite a shocker when you put it into context. Up until now, I believe that the largest bankruptcy in history was Enron, valued at around US$70 billion. The Lehman Brothers bankruptcy is estimated to be valued at around US$680 billion. That’s almost a 10-fold increase in magnitude – truly seismic.
It’s unclear as to how this will affect us all – in the USA, UK, NZ or beyond. But it’s becoming pretty clear that the notion of a short, shallow recession is something that is becoming increasingly unlikely. Liquidity in the money markets is actually a gloopy mess threatening to congest the hearts of the economic body corporate. Banks are hoarding money rather than lending it out – unless you want to pay top dollar interest rates for it, or want to front up an increasing share of the risk by bringing along some capital yourself. The coming shakeout in the financial services industry will have knock on effect in the rest of the economy. They say that for every 10 jobs lost in financial services, 7 jobs are lost in the wider economy – interior designers, cafes, dry-cleaners etc.
What we have seen over the past few weeks here seems more and more like a dead cat bounce. It gives me no pleasure to hazard a guess that we have a further substantial distance to fall as our purchasing power and subsequent quality of life is eroded, for maybe the next 2 years.
Run on Wed, Sep 01
11.57 km (05:08 min/km)
HR 146 bpm - Burned 941 C
Cadence 86 spm
http://www.nytimes.com/2008/09/15/business/15lehman.html?partner=permalink&exprod=permalink