Money Under the Mattress?
Childhood nightmares of the 1930s Depression are back today with the fall of Lehman Brothers and Merrill Lynch as the unthinkable becomes the possibly avoidable in a national economic meltdown.
“Will the U.S. financial system collapse today,” asks economist Paul Krugman, “or maybe over the next few days? I don’t think so–but I’m nowhere near certain.”
As a small-account holder at Merrill Lynch, my antennae went up after a phone call from someone there this weekend trying to sell me a certificate of deposit–an unprecedented pitch for cash to bail out the huge investment house.
Where did all the money go? “To understand the problem,” Krugman writes, “you need to know that the old world of banking…has largely vanished, replaced by what is widely called the ’shadow banking system’…(M)ost of the business of finance is carried out through complex deals arranged by ‘nondepository’ institutions, institutions like the late lamented Bear Stearns–and Lehman.”
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