Is 2008 the new 1929?

Sure, financial giants are in trouble, but many people are probably thinking, “good — those greedy #$%#!s deserve it.”

For those of us whose livelihoods are connected to the financial industry, the impact of Wall Street’s meltdown goes beyond the astounding headlines. If we don’t have our own ties to AIG Inc., Merrill Lynch & Co. Inc., Lehman Brothers Holdings Inc., all of New York, or any of the other companies in the news, we know people who do, as well as others whose careers are directly affected by the crisis.
To the vast majority of Americans, however, Wall Street’s problems are an abstraction and perhaps even a cause for some good old fashioned schadenfreude.
Sure, financial giants are in trouble, but many people are probably thinking, “good — those greedy #$%#!s deserve it.”
Beyond that, auction rate securities, mortgage-backed securities and credit default swaps are incomprehensible to most people (and, apparently, to the management of many financial companies that created and traded these instruments) and are seemingly unconnected to real, everyday life.
The takeovers and government rescues that have ensued in the wake of the crisis have oddly insulated the mess from most people.
In fact, a standard crisis scenario seems to have emerged: Big company says it has some problems that are eminently resolvable, problems get worse, company teeters on the verge of going bust or actually falls off the cliff, a solution is concocted, the markets breathe a sigh of relief and everything returns to normal.
Certainly out in the hinterlands, few care or are affected by whether AIG is owned by shareholders or the government.
But this deceptively calm state of affairs will not last.
The real world soon will see the consequences of the convulsions on Wall Street and the picture is grim.
Regardless of who’s next to fall on Wall Street, one thing is certain: credit is going to continue to contract and become more expensive — and that spells trouble for Main Street.
In addition to credit contraction, we’re witnessing giant asset deflation (lower prices for stocks, bonds and houses) combined with inflation in the prices of real goods and services. Add a nascent recession, a weak dollar, ballooning federal deficits and home foreclosures that are running at the rate of 300,000 a month, and the picture for most everyday people is getting darker.
The experts tell us a Depression no longer can happen.
Those would be the same experts who told us that derivatives mitigate risk and that diversified financial giants are sound.
All the talk of the economy being basically healthy and conditions being ripe for a turnaround are eerily reminiscent of whistling past the graveyard circa 1930.
We’ve only seen hints of the price tag for the credit inferno that Wall Street stoked. We’re all going to pay the hefty bill — and the price is going to be steep.