Down The Rabbit Hole

If ever there was a week in which the world of Alice in Wonderland became reality, this past one was it.

Lehman Bros. fell down the financial rabbit hole. Merrill Lynch and American International Group narrowly avoided the same fate, looking down the hole, but choosing instead to respectively be acquired by Bank of America, and to accept an $85 billion loan from the Federal Reserve Board in return for a 79.9% stake in the company.

Along with the precipitous fall from financial grace of these three financial giants, a lot of the consumer confidence followed as well, as witnessed by the jittery world financial markets. On Sept. 17, for instance, following the Sept. 16 AIG announcement, the Dow fell 449.36 points to 10,609.66.

Part of the reaction is a result of institutional fear over just how tight credit will become and whether the current financial crisis will deepen.

Part of it is also consumer fear. Branding worked well. Consumers recognize these blue-chip names, and when names that they have come to know ended up at the center of a crisis, they know it is time to worry.

Along with fear, there is also confusion about the events of this week. I always like to hear what the average person thinks about such happenings. It balances the valued views of the industry insiders and analysts who are vital to the stories we place on our Web site and in our magazine.

On the eve of the AIG announcement which was to follow hours later, I was walking on the street eavesdropping on a conversation of two people in front of me. What struck me is how one of the two took a general truth, the trouble AIG was facing, and turned it into his version of fact: the company had already gone out of business. And given their version of fact, what he should be doing–getting out of the market.

Fortunately, his friend responded that she disagreed, that he might be a bit premature, and things might not be as dire as he believed.