Everybody! Under the mattress! Now!

It is the  fundamental  nature of a recession that the economy is running below its potential.  This is a collective failing and not an individual one.  But the fault can be observed through out the system.  Lenders slow lending.  Staff is not replaced.  Hiring proceeds more slowly.  Projects are  deferred.  The effect permeates the entire system from top to bottom.  Down at the country club board members feel out of it if they can’t chat up their recent layoff.

Each place in the system has it’s own tangled logic for it’s reluctance to proceed and the cumulative effect of these drags the entire system down. Consider hiring, the pool of good talent has expanded  tremendously, due to all those layoffs.  Planning a layoff?  You should probably overshoot.  That will give you some open  requisitions  that you can then use to draw on some of that great available talent.  But then, in this chilly climate, once you have those  requisitions you’ll be tempted  husband them and move slowly.

Consider lending, over at Bronte Capital in the midst of a long  (somewhat self interested)  posting where in he labors to make the  argument  that the US banking system is probably solvent.  He blocks out a first order model of why banks are not lending.  The brief form is that they have  numerous  existing loans on their books with a face value of say 90 cents on the dollar.  But in fact if these are held for their entire life they are probably actually worth 75 cents.  Meanwhile if the bank were to sell those loans in todays uncertain times they might get fifty cents on the dollar.  Set aside that these numbers help to shed a tiny bit of light on what the nature of the banking problem is.  Banks aren’t lending because why write a new loan at 100 cents on the dollar when you can buy loans at 50 cents on the dollar?  Then recall, again, that in this chilly climate they husband these options, move slowly, and nothing happens.

No doubt you are doing your bit to keep the economy down.  Call it thrift!  You may need this excellent solution to your cash storage problems.

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