Peter, I’ve been looking at that graph you linked to at the St Louis Fed. Everybody should. I was also struck by a line from your pal Andy Kessler in Forbes re Mark Cuban and the Chicago Cubs:

So, fair to say, the Cubs are no longer worth $1 billion. Same team, same cash flows, more or less. Yeah, advertising will be down, but not by that much. It’s just that without financing, the same identical underlying asset is worth much less!
How much less?
“With the credit market on the fritz, the other option was to add investors and just pay cash. However, if we were going to pay cash, I was not going to bid anywhere near $1 billion for the assets…”
Down 40% is my guess. Everything is down that much. $600 million or less is probably the right answer…
So here we sit in early 2009. Banks aren’t lending much, so assets are being quickly revalued back to some rational cash-flow multiple. A house is increasingly worth what your income cash flow can afford to carry mortgage payments, not what the next sucker will pay to take it off your hands. Same for stocks.

Trying to reverse an old-time ”credit crunch” is one thing. But trying to restore systems in which an insanely inflated gain on assets is a permanent feature of life is a fool’s errand – I’m thinking not just of the global finance markets but also of more localized phenomena, such as the English property racket.

“TARP” fails a basic truth-in-advertising test. It’s not a “Troubled Asset Relief Program”. It’s a relief program for failed financial instruments that’s wound up troubling the assets even futher. By common consent, the first $350 billion of TARP was completely wasted. Secretary Paulson might as well have ordered the Treasury to hurl it out the windows in dollar bills and watch it flutter down into the Potomac and out to sea. At least then, the odd rummy sleeping in the park might have caught a buck or two to buy some industrial alcohol.

Congress, meanwhile, is behaving disgracefully, magically transforming pork into “stimulus” by sticking another three zeroes on the end. Severe asset deflation is just about manageable. Severe asset deflation plus government-mandated prevention of market correction plus out-of-control spending and the eventual return of inflation is a recipe for catastrophe.