What the current debt crisis teaches us

August 20, 2007, 1:18 PM UTC
Fortune
  1. thinker.jpgWhen there is no Stupid Money in the system, everybody gets very freaked out.
  2. The economy now runs on deals that are financed at fifteen times cash flow, with less equity up front than it took you to buy your house.
  3. If big lenders can’t jack up the prices for assets, deals will only get made if they make operating sense. This puts a crimp into the system it just can’t tolerate for very long.
  4. Wall Street is very uncomfortable if no deals propped up by massive debt are in the pipeline.
  5. Unless companies can buy growth they can’t sustain over time, security analysts are unhappy with their fundamentals.
  6. No debt, no glory.
  7. The Feds will take action to ease this kind of crisis before they will, say, investigate why the price of gasoline seems to be determined by the affluence of the neighborhood in which each gas station in located. Gas this weekend on this section of Long Island, for instance, is $3.60. Gas 40 miles away back in Queens and New Jersey is $2.89 or lower.
  8. The Feds will move more swiftly to help the banks with their debt problem than they will to make sure that airports work properly.
  9. If bankers, lawyers and traders don’t make hundreds of millions of dollars per year off the deals they engineer with Stupid Money, there will be no one to buy a two bedroom apartment in Manhattan for six million dollars.
  10. When you are addicted to something it hurts to take it away. So, you know, why do it? Bartender! More debt!