The Illness, the Medicine, and the Other Shore

I’m not saying anything readers of this site don’t feel viscerally, but what incredible times. Absolutely astounding. Tuesday’s carnage on Wall Street after Monday’s mess … to see Iceland teetering on a species of receivership … to see the Nikkei off 10% overnight … to see the U.K. banks being partially nationalized … and the Fed buying commercial paper … remarkable. If this kind of fear we’re seeing in the equity markets — stocks have had the worst five days since the Depression — doesn’t speedily turn into some sort of temporary bottom on the market I genuinely don’t know what will. Truly.

Of course, in a sense it doesn’t matter. The damage has been done. The global banking system is a mess, like a patient that has been poked by too many interns and fed (no pun intended) too many experimental medicines. It’s impossible to know any more whether it’s the illness or the medicines that are hurting things here. And even if we have jury-rigged a semi-functional banking system again, the rapid contraction of the real economy is set to feed back into the financial system, causing more credit problems. The effects will be vicious.

I am trying hard to look through all of this to see what things look like on the other side. And I can see faint outlines, for sure, but that other shore still seems awfully far away.