The term "perfect storm" is overused by writers who have no other way to describe a disaster. Leaving that aside, the news from the last day would appear to indicate that a recession is here and that it may be long and brutal.

Oil moved close to $100, making it more likely that the costs of every petroleum by-product will rise and that car sales and airlines will take a hit.

News comes from the FT that the number of broken LBO deals this year has already hit $200 billion, about double last year. Banks are stuck with debt from deals that barely made it and this is likely to have a profound effect on write-downs.

Fitch reports that the amount of downgrades of corporate bonds rose in Q3 to over $92 billion.

Bloomberg writes that credit-default swaps on bonds of Citigroup (C)., Wachovia (WB). and Morgan Stanley are trading at the highest in at least five years on speculation the nation’s biggest banks may be forced to write down more subprime assets.

Rating agencies Standard & Poor’s and Moody’s have received default notices for $5bn worth of the vehicles, known as collateralised debt obligations, giving holders of senior debt the right to sell assets.

The FT writes that “The senior controlling class will typically want to get the hell out and pay themselves back, even if that means selling the underlying securities at a discount,” said Arturo Cifuentes, managing director at fixed-income broker RW Pressprich.

All of that would be bad enough, but the Fed is signaling that it has not interest in dropping rates unless things get much worse. The New York Times writes that "in an unusually blunt interview, the president of the Federal Reserve Bank of Philadelphia said he already expected growth to slow to an annual pace of 1.5 percent or less. But he said he would not support another rate cut unless the slowdown appeared to be even sharper than that."

Each of these things do more than add to one another. They multiply in a pattern that would indicate that rates will not fall soon but that the factors that kill the economy and financial systems are rising quickly.

Even if the Fed cuts now and cuts deep, it may be too late.

Douglas A. McIntyre

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