I am not suggesting that its the end of the world, nor would I. It is a contraction, but its going to be a very very big one. Companies will make money sure, but the capital constriction is going to be bigger than I think most expect.
Less and more expensive capital hits all markets... and its difficult to predict when it becomes widespread exactly who will get burned.
Imagine if you will, FORD or GM for example finds themselves in a need for huge cash influx to just stay afloat as they did just not that long ago? Fortunately for them that need happened at a time when rates were low and capital was readily available.... that’s not going to be the case in 6-12 months.... Would they be able to survive in their loan rates were to jump just a few points?
Now I don’t expect this to happen to these companies, but it is going to happen to others. Capital contraction, in an age where most companies are over leveraged to begin with is NOT a good thing. IN the broader sense it is, as it will hopefully end the insanely short term practice of leveraging yourself to meet a short term street estimate and actually build your company slowly and steadily... however the fallout to flush out those who have made the mistakes will be massive and ugly.
Like I said, I think the $200 BILLION is grossly underestimated... I expect loses to be much much more than this.
Is it the end of the world? Nope.. but any company that is looking at short term floating notes as part of its obligations or severely leveraged for whatever reason, may look profitable now, but likely won’t be for long.
That’s fair and balanced, as they say.
Credit spreads which had (irrationally) evaporated during the last few years are coming back. Had to happen. This is the trigger, IMO.
For yucks, I went to Daily Kos to see what the gloomsters over there are saying. If you want to laugh, check out some of these comments — one guy started out by stating the dollar is pegged to gold...
http://www.dailykos.com/story/2007/8/10/75050/4324
Just remember, two decades ago we were told the S&L “crisis” would be FOUR TIMES that much ($800 billion, in 1980 dollars). So $200 billion is, in today’s dollars, about one seventh or one eighth the impact of the S&L failures, which is to say, pretty meaningless.