It Takes Money To Make Money. Sadly, There Seems To Be A Shortage of Liquid Assets.

Like John McCain, I don’t pretend to know much about economics; therefore, today’s news from Wall Street is somewhat mystifying to me.

In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.

What I do know is this: the ongoing failure of banks and investment firms will have a major impact on the rest of the economy, including a negative impact on those of us who rely on brand marketers to spend money.
Robert Paterson, President of The Renewal Consulting Group Inc. and a prolific blogger, used to be a money manager. At one point in the late 1970’s he had nearly 2 billion under management.

This is what he’s saying today:

We had then a relatively straightforward risk to manage. It was humanly possible to manage the risk and work for a reasonable return. You did not have to be a genius – you just had to work hard and be disciplined.
But in the last 5 years – I have pulled out of the market. I just could no longer do what I had tasked myself to do. I could no longer manage the risk/return. The market had stopped being a market and had become instead a casino.
What happened? I think that our financial system has become so disconnected from reality in every way.
In today’s market, the risk cannot be managed or even known. It’s not just that I can’t do it – I don’t think it is possible.

Doom and gloom author and blogger James Howard Kunstler, is also putting complicated matters plainly.

I wish I knew whether this extravaganza of ruin might settle the question as to whether America goes into hyperinflation or implacable deflation, but the net effect is that money is leaving the system in big gobs. And if not money per se, then the idea of money as represented in certificates, contracts, counter-party positions, and gentlemen’s agreements. This is the day that America finds itself a much poorer nation. The capital we thought was there, is gone.

So, where are we? I know I’ve already seen clients tightening their belts this year. Is that your experience, as well? I’d love to hear your thoughts on the dramatic changes we’re seeing in the economy and what it means for the ad business.