The 2 Trillion Dollar Meltdown Man

Last Updated Oct 9, 2008 10:25 AM EDT

The meltdown has only started, according to one observer. Granted, that observer is Charles Morris, whose January book, "The Trillion Dollar Meltdown," is now out in paperback (updated to "The 2 Trillion Dollar Meltdown"), so he could benefit from book sales to panicked people.

To wit, this exchange with ProPublica's Eric Umansky in Talking with the 'Trillion Dollar Meltdowns' Charles Morris:

Umansky: So is it safe to say then that you think despite what we've gone through so far, we're still not over the bubble that we were in?

Morris: Oh no, not at all. We haven't gotten to leveraged loans yet. The junk bond market -- I'll call it the high-yield bond market -- is going to have terrible troubles all through 2009 and 2010. The home mortgage market still has huge swaths of loans out there that are going to get violently repriced in 2009 and 2010. Credit cards are just now starting to get nasty. Default rates are really starting to spike up.

I found the interview a strong one. Morris's arguments for why the U.S. bailout will actually make things worse make sense -- why should taxpayers take on all the bad debt and get no equity in return? That would be the famous Swedish model, which Britain just used in its bank bail-out plan. Morris thinks the U.S. bailout will make for a kind of disastrous way to deal with bad debt here:
it's going to be a mess. Markets do this strange thing. Up to a certain point every signal gets interpreted positively. And then all of a sudden the whole market switches and every signal gets interpreted negatively. You know, they kind of switched.
Morris himself is all in cash, and even sold his apartment last year. If the Dow is really headed for 7500, as I heard on the radio yesterday, keep Morris in mind as a future source of private investment, especially since we're all going to buy his book.

Joking aside, I have talked with entrepreneurs who have moved all their working capital to cash -- one joked that his CFO's mattress is now the company's bank -- even though they know in their heads that mutual funds are not likely to fail, and they're foregoing hundreds of thousands of dollars in interest.

I don't really want to see a sharp and nasty, Volckeresque recession any more than anyone else does, but what we had in the 70s were indeed much worse. Read the interview and tell me whether you think Morris is right in suggesting that we're in for a downturn that's brutish and long.

  • Michael Fitzgerald

    Michael Fitzgerald writes about innovation and other big ideas in business for publications like the New York Times, The Economist, Fast Company, Inc. and CIO. He’s worked as a writer or editor at Red Herring, ZDNet, TechTV and Computerworld, and has received numerous awards as a writer and editor. Most recently, his piece on the hacker collective the l0pht won the 2008 award for best trade piece from the American Society of Journalists and Authors. He was also a 2007 Templeton-Cambridge Journalism Fellow in Science and Religion.