The trade of tomorrow: short world economy, long shotguns and fortified cabins in the mountains

The Lehman bankruptcy has enormous personal consequences for me, but I am more fascinated by the big picture. Unfortunately this picture keeps getting bigger by the hour.

We appear to be screwed. Lehman has shown the way for many other overleveraged firms to follow. A daring peek into the dirty end of the balance sheet results in write-downs, which requires capital. Said capital turns out to be hard to get; preferreds are no longer an option. Hubris prevents drastic action. Implosion.

The world appears to be deleveraging. Money in action is going back under the mattress. To help the process, the rating agencies are experiencing a moment of righteousness.

The Fed, in turn, has drawn a line in the sand, and made an example of Lehman, which certainly deserved its fate. But the fall started a dangerous chain of events. Despite having avoided the moral hazard of propping up an insolvent giant, the Fed has failed to maintain consistency of righteousness; all manners of rules have been relaxed to deal with the aftermath of Lehman and the coming AIG disaster. It seems to me that the Fed has chosen the wrong moment to let Lehman die alone.