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General Motors Acceptance Corp.'s commercial paper is trading as if Moody's and Standard & Poor's had already lowered the ratings boom.

The announced merger of the two big California banks, BankAmerica Corp. and Security Pacific Corp., will probably happen but it will not certainly happen. The merger depends on regulatory and shareholder approval and other considerations...

Mall of America is America's mall and America's newest financial laboratory.

Proof that all is not lost in gold was provided by United Press International last Friday...

What is your nomination for the biggest surprise of 1992? A Federal Reserve-induced rise in interest rates? It is almost beyond imagining.

Purely by coincidence, more credit-related news has broken literally yards from Mall of America's front porch....

More than one reader has asked: What in the world is the centerfold for? What do the numbers mean? Do you obtain them from reliable sources or make them up?... These are great and weighty questions, and we will begin at the beginning, with the Federal Reserve balance sheet...

Money-center bank stocks fell on Tuesday amid rumors and facts.

The man on the pre-dawn radio news Monday speculated that the $5.2 billion rise in M-2 last week was so unexpectedly large that it might forestall the Federal Reserve from lowering interest rates again.

For understandable reasons, American finance is usually preoccupied with America, but the symptoms of debt contraction are evident in more and more foreign countries.

In full flight from 4% money-market yields and the specter of 3% money-market yields, investors have re-embraced junk bonds.

William M. McGarr, general partner of the McGarr Fund, fast friend, paid-up subscriber and early proponent of the now-popular idea that joblessness in the service sector is one of the distinguishing characteristics of this weird recession. So when McGarr offered to interpret the meaning of a new cover of Business Week, we eagerly listened.

The trouble with the U.S. economy, contends the consulting economist Peter L. Bernstein, is not the recession. It is the preceding expansion -- indeed, a whole string of preceding expansions. For decades, the economy has suffered a progressive loss of oomph.

The business climate is even more peculiar than it is frigid.

David Gladstone, president of Allied Capital, the Washington (D.C.)based venture-capital and business-credit firm, has a 50-yard-line seat on the domestic credit contraction.

No fewer than 12 funds listed in the Barron's Money Market Mutual Fund section now yield less than 4%.

Listening to David Gladstone, the venture capitalist, on shopping malls, we undertook our own investigation.

A snapshot of Third World Debt and worldwide electronic dollar payments...

Money-market interest rates continue to rise in Europe as they fall in America. Virtually unnoticed in this country, the trend to stringency on the Continent weighs heavily on European business activity and stock markets. When the disparity will begin to punish the dollar exchange rate is anyone's guess.

As stock prices fell on Tuesday, long-dated bond yields climbed. As the market plunged last Friday, 30-year yields meandered. Formerly, a flight to quality meant a flight to all points on the Treasury yield curve. Now the long end goes begging.

On the Tuesday night before the Friday stock-market break, four shortsellers dined modestly at J.G. Melon, an Upper East Side restaurant that refuses to take credit cards....

The happy phrase in the headline was coined by James S. Chanos, noted short-seller and public speaker as he addressed the Grant's conference last week...

Speaking of cash, John Exter, the former central banker, former Citibanker and full-time thinker about money and banking, commented over the weekend about the sluggishness of the gold market....

From a memo distributed in-house by A.G. Edwards & Co. on November 12: "We have discontinued monthly publication of gold indicators due to lack of investor interest and uncertain prospects for recovery in the price of gold. . . .

Two Wednesdays ago, a short but suggestive item moved on the Dow Jones news wire: WASHINGTON -- Sens. Ernest Hollings, D.-S.C., and Trent Lott, R.-Miss., introduced a bill to repeal the so-called passive loss limits to the 1986 Tax Reform Act as they apply to real estate.

That the credit contraction is no American aberration but an actual Global Trend was underscored again last week by the Bank for International Settlements....

For two straight months, the inflation rate has fallen in Canada.

As the plan to impose a legislative cap on credit-card interest rates faded, the free-market tendency of nonbanks to eat the lunch of banks proceeded.

A snapshot as of November 19.

As money-market interest rates in the United States push toward the zero barrier, there's a rise in Europe.

Two months ago, notice was taken here of the transatlantic yield gap, the disparity between U.S. interest rates and German interest rates (and French and Swiss rates).

Stories about the illiquidity of Mutual Life Insurance Co. of New York, the country's ninth-largest mutual life company with $20 billion of assets under management, have been common fare this fall.

If R.H. Macy & Co. sold bonds, like Morgan Stanley & Co., instead of form-fitted sheets, its problems would be behind it. If bond mutual funds could be lumped into the national retail sales data along with automobiles and sweatshirts, the recession would be over. Americans want bonds...

Kitty Brady, wife of the Treasury Secretary, Nicholas F. Brady, tells W, the fashion Bible, about her husband's secret personal needs...

In money and credit, the world is one, big, happy family, and Japan's nonbanks are therefore our cousins. The nonbanks are finance, leasing, consumer credit and mortgage companies....

How much better off the nation would be, Louis Lowenstein reflects in his winning new book, if the nation's young business talent had gone to Toledo in the 1980s instead of to Wall Street.

The Financial Times, London, reports on the previously unthinkable (from the October 30 edition): Defaults on home loans will cost the U.K. insurance industry more than £3 billion during the next two years...

Car finance is looking stronger, but the economy, for that very reason, is looking weaker.

In response to Monday's carefree, front-page Wall Street Journal story -- "Economy in the U.S./Isn't Nearly as Sour/As the Country's Mood" -- we submit the accompanying graph...

Either one believes that a collapse in the growth of the money supply is fertile ground for the next inflation, or one doesn't. We don't. If one doesn't, one is presumed to be bullish on bonds. We are not bullish on bonds. Our reasons follow:

Like an iceberg, Citicorp is mostly underwater, and it was out of sight even before it suspended its dividend. The facts are disclosed in the tables presented inside.

Coming hard on the Optima news, the Citibank consumer-bank news and the Sears Receivables Financing Group news, a West Coast reader called with a tip.

The following, from the October 11 Financial Times, caused no consternation on Wall Street but a small stir in this office...

Salomon Brothers' balance sheet is the biggest on Wall Street (Grant's, October 11), but it isn't the fastest growing. Between 1982 and 1990, Morgan Stanley's was.

If bankers won't lend to each other, why should we lend to bankers? Following reports from Europe last week of another sharp drop in interbank lending, that excellent, all-season question has become even timelier.

Bearish yet solvent, S. Donald Sussman, 45 years old, is a role model for 1991. "I'm always bearish," the New York investor cheerfully explains. "That's how I make my living."

Handy & Harman, the 124-year-old, New York-based precious metals refiner, has had a bad decade in the stock market.

The late Garet Garrett wrote prolifically about Wall Street under the best byline in the history of newspapers. In "Where the Money Grows," first published in 1911, he described the "invisible" people who seem to buy at the bottoms and sell at the tops.

Quoted Market Prices of Sovereign Debt and Total Return on Box Score

Concerning the gale of expiring certificates of deposit that is ostensibly blowing down Wall Street (see diagram, page one), some Boston friends raise a question.

Westinghouse Electric's third-quarter loss may be big enough to disabuse the Street of the idea that bad news is actually good news.

The alleged manipulations in the Treasury auctions last spring have been discussed, diagnosed or deplored down to the very last detail, except for one: Why did such titans of the stock market as Michael Steinhardt deign to buy the two-year note in the first place?

Take a three-year-old down to visit the unified trading floor of the New York commodity futures exchanges and that child will probably cry. Take any non-acclimated grown-up, and he or she, too, will recoil in shock or amazement.

Susan M. Sterne, the on-the-money consulting economist from Stowe, Vt., denies that the recent economic news is in any way surprising. It would be surprising if a recovery had started, she says, but a recovery has not. What is under way -- still -- is a recession.

Greenland has decided to abandon the socialist policies it has followed for decades and switch to a market economy, an official source in the Arctic territory said Tuesday.

Credit is money of the mind, and the decision to lend or borrow is based only in part on arithmetic. It is also a matter of morale.

The theme of less money moving more slowly also describes the recent activity on the Clearing House Interbank Payments System, better known as CHIPS ...

"The governor of the Bank of France yesterday warned Germany that the increase in its inflation rate was causing concern to its EC trading partners." So reported the Financial Times ...

Weakness in the growth of the money supply is an unsettling fact, and people will try to explain it away.

The Daily Telegraph, London, reporting on the collapse in high-end art sales, also noted weakness in the low end.

At a gold conference in Tokyo the other day (who paid the bulls' plane fare?), Alexandre Doumnov, deputy managing director of international monetary and economic development of Gosbank, the official Soviet bank, dissembled.

Once South African bonds were unmarketable because owning them was unthinkable (Grant's, Feb. 23, 1987; Feb. 1, 1991). Now they are rehabilitated...

The Hotel Inter-Continental, owned by the Saison Group, Japan's fabulously chic, fabulously indebted retailing group, was the site of the Grant's Chicago conference on September 19.

Bank credit may be contracting, but stock-market multiples are still expanding.

Due diligence into the proposed votes-for-loans transaction between NWA and the Minnesota state government has yielded an unexpected bonanza...

Scrap-metal prices have rallied, but the run of industrial commodity prices has not.

Modern idolatry takes the form of central-bank worship, not golden-calf worship. People believe in paper currencies and in the central banks that print them.

The country's fourth-largest Mercedes-Benz dealership filed for bankruptcy protection last month, disappointing its major creditor, a Japanese bank, and menacing the lifestyle of its bull-market owner, James B. Slemons. The Los Angeles Times elaborated...

Short-selling may or may not be un-American, but it has certainly been unprofitable. Not only is the broad market rising, but also bear-baiting has become institutionalized.

The new, imperial Bank America may or may not "win the West," as Wall Street is heavily betting it will, but it has not yet conquered the North.

The proposed merger of Security Pacific Corp. and BankAmerica Corp. would seem to violate the D.H. Cuddy canons of sound banking.

From the sovereign debt front, two items: The Soviet Union is pondering default on its $65 billion of debt, and the Grant's Third World Debt Index is at its highest level since 1987,

Nui Onoue, 61-year-old Osaka restaurateur, spiritualist, mah-jongg parlor operator and 10-figure debtor, is the Meryl Streep of the summertime financial scandals.

The weakness in consumer borrowing has had reverberations up and down the credit food chain.

Overcapacity in American banking was a bulwark of the financial prosperity of the 1980s. Too many banks made too many loans. Possessing too much credit, surplus entrepreneurs closed redundant deals. The prices of buildings, houses, corporations and common stocks gratuitously rose.

In the glory days of the Tokyo stock market, the most bullish thing to believe was that listed companies would buy each other's stock but never sell it.

"With investors flocking to high-yielding bonds from Latin America," the American Banker reported last Friday, "J.P. Morgan & Co. is preparing to underwrite a $100 million issue for Argentina -- the country's first public issue since 1982."

The main reason for the surprisingly strong, 0.5% rise in July retail sales, according to the Commerce Department, was a surprisingly strong, 1.1% gain in auto sales.

We have asked a question: If the debt continued to grow as it has been growing, what would it be at the end of the decade? Would the number be bullish or bearish or merely appalling?

A reader of ours was bemoaning the recent quarter-point cut in the federal funds rate, to 5-1/2%. There would be nothing to report if this person were a short-seller...

The public debt of NWA Inc., leveraged holding company of the indebted Northwest Airlines, is offered in the neighborhood of 19%. Its bank debt is offered at 90 cents on the dollar...

Corrections to recent issues...

The accompanying graph is the futures-market analogue to the rally in Peruvian bank debt, the sideways action in gold and the explosive rally in bank stocks...

John C. Boland's new mystery novel, "Easy Money," is indelibly set in the world of the 1980s. People borrow money, buy companies, get rich, run afoul of the SEC, sell junk bonds -- and commit murder.

If the small world of interest rates knows anything by rote, it is that the Bundesbank must tighten and the Federal Reserve will certainly ease again, probably before Labor Day...

Bank deposit rates are falling -- Citibank's, for example, is down to 4.88% -- as bankers reappraise the value of money. Premiums paid for so-called core deposits of failed thrifts have dropped for more than a year, and some banking markets are actually glutted.

"This is the end of the scandal," an analyst in Tokyo assured the readers of The Wall Street Journal on Tuesday. "What more is there to be disclosed?" Plenty, we gather.

The column by Kenneth L. Fisher in the August 5 issue of Forbes is headed "Dumb Bears." More economically, it might have been headed, "Dumb" or "Bears." Juxtaposing the two words, nowadays, is redundant. If the bears were not dumb, they would have bought stocks at the bottom and drank away the summer in the Hamptons, toasting the Bush administration.

"Six insurance companies downgraded last Friday by Moody's Investors Service breathed a collective sigh of relief this week as policyholders failed to stage a run on their policies..."

Fallout from the closing of the Bank of Credit and Commerce International includes the gumming up of world trade, the demoralization of an important class of British depositor and the hurried organization of a "lifeboat," a loan to head off a liquidity crisis, for one of Britain's largest mortgage lenders. All this in addition to the espionage angle.

Thoughts on earning a consistently high rate of return on the stockholders' equity...

Olympia & York, the giant, visionary, mortal North American real-estate developer, continues to suffer reverses in London.

The glass-clinking and handshaking that followed the reappointment of the chairman of the Federal Reserve Board continue to suggest a lack of clear thought.

Quantum Chemical Corp.'s 13s of 2004 gained a point to 76.6 last week, following the company's announcement that it would increase polyethylene prices...

Time Warner, the global media company with the upper-case indebtedness, may break the record for the largest American equity issue ever.

Sotheby's Holdings has had its troubles -- the Impressionist and contemporary art markets are "in transition," it obliquely admits -- and so has the commercial-paper market.

The German and American monetary scenes are, respectively, fire and ice.

In our opinion -- your editor is speaking -- Alan Greenspan is not the best Fed chairman since Eccles. He is another guy with a business suit and a personal computer who thinks he can make an honest woman out of paper money.

Japan's financial troubles have struck at one of the country's most cherished institutions -- the golf club

So how's business? Are banks lending except against the collateral of gold bricks or Treasury bills? What's new in housing? Whither scrap metal? --Grant's has collected some answers to these timely, down-to-earth questions,

United States Surgical Corp. is an engine of human progress with a stock symbol attached. It is the head, heart and hormones of capitalism, all rolled up into one... Paradox?

Meeting with fellow Citibankers recently, chairman John S. Reed disclosed that the cost of bad loans in the bank's corporate-finance section was running 25% higher than expected...

Portraits of the Los Angeles commercial real-estate market (courtesy of the Los Angeles Business Journal)...

Like inflation, secrecy is an integral part of the Federal Reserve tradition. Secret work is important work. It heightens suspense, stimulates newspaper copy and generates brokerage-house commissions.

The bank megamerger -- Chemical and Manufacturers Hanover -- was heralded as the most momentous credit news of JuJy 15. However, Mutual Benefit Life Insurance Co. was taken over by the State of New Jersey on the same Monday. According to The Wall Street Journal, it was the largest such seizure on record.

The kitchen-sink monetary aggregate, M-4 (it's defined as M-3 plus T-bills, commercial paper, bankers' acceptances and savings bonds), is setting new downside records.

So distracting was the news from the great California banks that nobody seemed to notice the fall of a minor one, Guardian Savings & Loan Association, Huntington Beach. Guardian was seized on June 21 by the Office of Thrift Supervision.

Newsday was on hand to record the scene at the U.S. Bankruptcy Court in Brooklyn last week as Judge Marvin A. Holland addressed a new crop of bankrupts

No doubt, personal bankruptcies constitute a lagging economic indicator, but the long rise in Chapter 7 cases is a trend with legs.

The Mount Washington Hotel, which was sold at the knockdown price of $3.15 million at a government auction last week, is part symbol and part real estate. The largest structure in New Hampshire, it was the site of the historic Bretton Woods Monetary Conference in 1944. Lord Keynes slept in Room 219.

Stone Container Corp., Chicago- based maker of linerboard, pulp and newsprint, is an economic bellwether.

Lending risk is easy to grasp, but "counterparty" risk on an interest-rate swap (or on an interest-rate floor, cap or collar, or in connection with a reversible swap or "roller coaster") is flummoxing. It is invisible to most investors because it is carried off-balance sheet. Out of sight, it is out of mind.

Trammell Crow Co., the nation's largest commercial real-estate developer; Citibank, the nation's largest bank, and various Arizona vendors (none of them, evidently, the nation's largest anything) are engaged in a dunning battle...

Martin A. Siegel, noted investment banker and government witness, bought 112 Beachside Ave. in Westport, Conn., in 1980...

Rapturous editorial commentary that greeted the half-point reduction in the Japanese discount rate Monday night failed to speculate on what the Bank of Japan might do if Tokyo stock prices resumed their headlong decline anyway...

[T]he most stupendous number is the 6.9% interest rate that the world's greatest leveraged media company was paying its banks on June 5.

A Grant's reader, taken aback by our bankruptcy story in the last issue, called to propose a theory. He ventured that debt is no longer debt. It is not the kind of ball and chain that formerly caused depressions.

The Dow Jones Transportation Average may or may not have confirmed the Dow Jones Industrials in a new bull market, as the technicians contend, but the news from the trucking front is decidedly amber.

On June 6, Brian J. Woolf filed for protection under Chapter 7 of the federal Bankruptcy Code at the U.S. Bankruptcy Court in Hartford. His petition is distinctive on at least two counts. First, he owned $700,000, whereas he owed $7.4 million. Second, he was once the Connecticut state banking commissioner.

Commercial real estate is the leper of markets, but no investment stigma lasts forever. Office buildings, warehouses and shopping centers will certainly have their day again, just as other pariahs -- bonds, for instance -- have returned to have theirs. The only questions are which day, which year and which millennium?

Joe L. Allbritton, chairman of Riggs National Corp., parent of Riggs National Bank, Washington, D.C., delivered a bearish appraisal of the Washington economy the other day...

Although not in recession, Japan is showing acute recessionary symptoms in an explosion of slow loans...

If a recession could be stopped by acclamation, this one would be over already. Despite hopeful data and strenuous jawboning, however, powerful monetary evidence continues to point to continued business weakness.

At this exact writing, rumors of a rise in the Japanese prime rate have pushed the first section of the Tokyo Stock Exchange into a loss of almost 500 points.

NWA, parent of Northwest Airlines, has debt on its wings, but Alfred Checchi, its Bartlett's-quoting co-chairman, is lighter than air. In a speech to the Detroit Chamber of Commerce the other day, Checchi rebuked the leverage artists of the 1980s, not naming himself.

If stock prices are leading indicators of business activity, so, too, are commodity prices, and the Moody's scrap metal index has recently fallen off a table.

The equity that Americans have in their homes -- the value once mortgages and other debts are subtracted -- dropped sharply in 1990 as homeowners borrowed at an unprecedented pace against their properties.

The state of bankruptcy, like General Motors common, has made a new high. Unlike the breakout in GM, however, the rally in chapters 7, 11 and 13 of the federal Bankruptcy Code has been continuous, not cyclical.

Evidence continues to mount that the world has had it, once and for all, with a form of money so obsolete that it actually glints in the sunlight...

Tucson Electric Power Co. is a cork on the sea of cycles. In the late 1970s and early 1980s, during the energy frenzy, it overexpanded. In the mid- and late 1980s, in the great bull market, it overborrowed (and speculated in the stock market, too). Like a teenager on a street corner, it did what everybody else was doing.

The space isn't much to look at (high ceilings but outplacement karma), but the rent is stunning.

The mortgagee's foreclosure sale of the Mount Washington Hotel, Bretton Woods, N.H., will be held on the afternoon of June 26, according to the ad in The Wall Street Journal.

Junk-bond yields are down, but automobile-loan rates, paradoxically, are up.

Do you know how much of the federal deficit is currently being financed by fast money?

The Sea of Liquidity in Japan has been evaporating for two years. The yield curve is negatively sloped, stock-market trading volume is low and corporate bankruptcies are high and rising.

In Maryland, a blue-chip state, even death-tax receipts are disappointing. Ditto, the receipts from state lotteries, business-franchise taxes, insurance-premium taxes, individual income taxes and sales taxes. The weakness in sales taxes is historic....

The Age of Discretion, which only began in the last couple of months, has already come to an end ...

Apropos of last issue's analysis of Delta, USAir and NWA, a reader kindly slipped us a copy of the hard-to-obtain NWA year-end financials. "You went too easy on them," he said of Northwest's parent.

Maryland isn't the only triple-A rated state that has stopped looking the part. North Carolina, once a fiscal Tahiti, this week drew a stiff warning from Standard & Poor's...

This is a short, searching note about copper, the red metal with the alleged business-forecasting properties.

Corporate balance sheets are beginning to show the effects of an important but little-noted rule laid down last December by the Financial Accounting Standards Board.

The monetary material in which the country is presently awash is not "liquidity." It is the hope of liquidity or the expectation that the Federal Reserve will do something wonderful and generous for every American family.

When the National Bureau of Economic Research recently fixed the starting date of the recession as July 1990, it indirectly impugned the predictive powers of the stock market of the United States.

A money manager we know was recently fired on the ground that he had invested recklessly. The offending investments were in gold- and silver-mining stocks.

Faith in the central bank has very nearly become a secular religion.

More than 50 closed-end, tax-exempt bond funds are listed in the back of Barron's, and almost every one is quoted at a premium to its underlying worth, or net asset value. The average premium, 3.9%, is small but telling.

Getting back to the back of Barron's... The leveraged funds sell at a higher premium to net asset value than do the nonleveraged funds.

Let's say you're in the market for corporate bonds. You want airline bonds, and you insist on a carrier that is burning cash, running up debts and failing to cover its fixed charges. You have your reasons.

It will be a long time before Fieldcrest Cannon, the sheet and towel and rug manufacturer, waxes nostalgic about the 1980s. Its lead bank is the Bank of Boston. Two of its principal customers, Allied Stores and Federated Department Stores, are bankrupt...

Last weekend's hefty, 6.7% wage rise granted by German employers to the 700,000-strong IG Metall engineering union may stand as the most under-appreciated interest-rate news of the week.

In general, speculation is making new highs and caution new lows. Common stocks and junk bonds are up, whereas gold bullion and the "TED" spread are down.

The corporate jet purchased late last year by the Feshbach Brothers, noted short sellers in Palo Alto, Calif., is back on the market again. "The reason we're selling the plane," Joe Feshbach, general partner, told Grant's, exclusively, "is because we need to have the market go down."

The state- and local-government fiscal slump is cyclical and therefore predictable, but its severity is out of character for this allegedly mild recession.

Let the Federal Reserve Board survey the nation's bank lending officers. Grant's will continue to survey the president of Allied Capital Corp., David Gladstone, 48 years old.

Richard S. Wilson, of Fitch Investors Service, reports on the tide that the bull market has not yet managed to stem: ... The deluge of corporate rating cuts continued in the first quarter of 1991 as downgrades outpaced upgrades by better than 7-to-1.

London Scottish Bank of Manchester, U.K., lends to the unbankable -- to people who have a job but, in many cases, no bank account.

In 1990, for the first time in 58 years, Davenport Bank & Trust Co., Davenport, Iowa, failed to exceed the prior year's operating results.

Interest rates on three-month claims denominated in Dutch guilders are 300 basis points higher than three-month dollar-denominated interest rates, and Holland, unlike Germany, is not undergoing unification with a former Communist country.

As capitalism flowered in the 1980s, so did a very specific kind of American socialism. Government-sponsored enterprises expanded their role in the mortgage market even as federally insured thrift institutions withdrew from it.

So far this year, junior securities have beaten senior securities, lower-rated bonds have outperformed higher-rated bonds and the stocks of certified shipwrecks have done better (in percentage terms) than nearly anything else under the sun.

On April 4, a highly exotic item moved on the Bloomberg news wire. It was a report of an upward revision to bankruptcy-related losses in a pool of Citicorp-issued credit-card securities.

Attica Correctional Facility in western New York State, the scene of the bloody prisoners' revolt of 1971, is back in the news again. But this time the context is fiscal.

Investors have spoken on the deteriorating state of municipal finance, and what they have said is, "So what?" So far in 1991, especially last month, they have sold stronger tax-exempt names and bought weaker ones.

In reviewing what follows, bear in mind that Riggs National Corp., parent of Riggs National Bank, Washington, D.C., does business in the shadow of the federal regulatory establishment.

Many years ago, when Grant's was still in its formative, Visa Card stage of development, the editor bumped into Steve Hueglin on Broadway. A founding partner of a successful municipal-bond brokerage firm, Hueglin nonetheless managed to convey the impression of a man who was chronically running late for a train.

"The currency" is not what gets inflated anymore, anyway. It is credit, and on this score there is good news and bad news to report.

At the bottom of the Great Depression, the Federal Reserve became an original equity investor in the Federal Deposit Insurance Corp. Now, at what everybody's economics department agrees is the bottom of a petty, one-horse recession, the Fed is to become the agency's creditor.

These are heady, record-setting days in civil aviation. Only last week, Continental Airlines Holdings reported the biggest quarterly loss since the Wright brothers.

In 1983, a reader of ours was earning $50,000 a year. Newly graduated from the Harvard Business School, he was not without prospects, but his net worth was on the short side of $20,000. One day a representative of the Boston Company called to make him a proposition. --"Do you want a line of credit?" the man asked our reader. --"I don't know. What's the catch?" --"No catch -- it's free."

Everyone knows about bad real estate. What is truly frightening is "good" real estate...

Although the upbeat action in Canadian bank stocks hardly reflects the news, personal bankruptcies in Canada rose by 46% last year, to 42,782, according to The Toronto Globe & Mail.

Confidence in the commercial-paper market, which the University of Michigan does not measure, is up, as is the peace-and-quiet index.

The last of the funds owed to the United States by Germany for its share of Operation Desert Storm were said to be in the mail last week.

Everyman's pat on the back in 1991 is the laudatory letter from a bank computer. "...Now you can match your successful lifestyle with the prestige of a premium card . . . . A high credit line -- and NO ANNUAL FEE FOR A YEAR!"

Maryland, like Texas and parts of Massachusetts, is known for other things besides prudent lending, but the crack-up of MNC Financial has obscured the quiet success of Mercantile Bankshares Corp., Baltimore.

On Sunday, The New York Times was sure enough of its predictive ground to print an unhedged economic prediction on its front page: "An Exception to Rule of War: Inflation Threat is Receding." --For years Grant's, too, has thought that inflation was receding, but lately we've begun to have our doubts.

Seth Klarman, 33-year-old investor of private capital in Cambridge, Mass., is successful, affluent and out of sorts. Trained in the Max Heine school of value investing (in which a dollar bill is deftly purchased for 50 cents) he eschews the big picture. He studies companies and tries to ignore Mr. Market unless that manic gentleman is the bearer of gifts.

John Britton writes: --Before March is out, investors will be able to buy put and call warrants tied to the yield on the long bond, or so Kenneth M. Luskin, senior vice president of Paine Webber in Los Angeles, hopes.

Citicorp, we understand, is working on analysts, even bearish ones, to lower their sights on first-quarter results.

In our word-mural on inflation (see page two), we draw the distinction between what the Fed intends and what it actually achieves.

The credit contraction has come to Main Street in a form so obvious and potentially damaging to business activity that it has largely gone unnoticed.

Seeking greatness at home as well as abroad but admittedly weak on domestic subjects, President Bush has borrowed freely from the policies of his predecessors.

Is there no fiscal progress? The seven-pound budget reminds us that there is.

"The next big crunch in commodities is going to come from a lack of people ready to finance them." John Dizard, presciently wrote in these pages one year ago...

The proposed acquisition of Tonka Corp. by Hasbro Inc. is a case study designed for Harvard. It illuminates not only the interplay between banks and commercial paper (a favorite subject of ours) and that between interest rates and creditworthiness; it also points up the weak economics of banking.

Concerning our "leper bond" piece of a couple of issues ago, the management of Okobank, Helsinki, posed a question: Why bear the political risks of investing in South Africa when some of the highest real yields in the world are available in Finland?

Last issue, Alan Greenspan was quoted to the effect that commercial banks are expected to make illiquid loans... From the same speech, the chairman of the Federal Reserve Board sought to allay unreasonable fears about the creditworthiness of the federal government.

The best hope for the bond market may be the installment as the chairman of the Federal Reserve Board of the allied commander in the Persian Gulf or of the wondrously named Marine commander, Walter Boomer. American arms so far outshine American banking these days that a switch could only help the dollar.

In a rare reversal of predictive roles, the Congressional Budget Office is now more optimistic than the White House about the American economy in 1991.

The Shawmut Inn is the place to stay in Kennebunkport, Me., if President Bush is at his summer home at Walker's Point and you are a White House correspondent assigned to watch him play power golf. The real-estate lending crisis hit home for the GOP on February 1 when this 19th century hostelry turned up in a mortgage foreclosure ad in The Wall Street Journal.

From January 15 -- D-Day -- to February 7, the common stock of Stone Container Corp., the ultra-leveraged paperboard company, vaulted by 69%. In the same three weeks, its subordinated notes (the 13-5/8s of '95) gained 33%, but its senior bank loans rose by only 4.7%.

W. Braddock Hickman once posited a truism. Based on research into the first four decades of this century, he found that downgrades of debt issues tend to predominate in bad times whereas upgrades tend to characterize good times. ...Now Moody's Investors Service has amended Hickman and brought him up to date.

In general, flaming thrifts are yesterday's news, but the Guardian is a case for the future. In its heyday, it lent to the marginal borrower. Now, under terms of [an] OTS agreement, it will do less of that...

Exactly one year ago, Grant's reported on a change in U.S. banking law that allowed Americans to open bank deposits denominated in foreign currencies. For 20 years, the Treasury had discouraged (although not absolutely prohibited) such accounts. Effective Jan. 1, 1990, however, the government changed its mind.

German bond yields have been dropping as if the issue of the cost of unification were now a non-issue. And well it might be. On Tuesday, however, The Journal of Commerce published this cautionary report...

The only crisis in currency is the heavy demand for it. The standard seasonal pattern is that cash returns to the banking system after the Christmas holidays. Some has returned this year, but scarcely...

The past is an easier topic than the future, and a hobbyhorse is the most comfortable seat in the house. For years, we have ridden the hobbyhorse of debt, and it's a cinch that the market will not ring a bell when it's time to dismount.

Van Hoisington, the Houston-based bond investor who is either bullish or bearish but never impartial, is bullish nowadays -- very. Ninety percent of the money he manages is invested in 30-year Treasurys.

MNC Financial's trophy credit-card company, MBNA Corp., came to market in an initial public offering the other day and flew right out the window. Unsuccessful in lining up a corporate buyer, the stricken MNC (parent of what used to be Maryland National Bank) scored with the public.

Appalling revelations about the niche New York real-estate market came to light at a recent meeting of a lower-Manhattan community board.

Long ago in the commercial-paper market, Penn Central Transportation Co. defaulted. The year was 1970 -- in financial time, the Bronze Age -- and the size of the default was $82 million. Small though it may seem in dollars, the failure caused a wrenching contraction in the paper market and a hasty rescue by the Federal Reserve...

Monday's news of the run on Old Stone Corp.'s Rhode Island banks was something out of an old Movietone newsreel: The depositors wanted cash, and they didn't care if the federal government said it insured their deposits.

Even now, Iraq may not have overtaken South Africa as the most hated country on the face of the earth. There's objective evidence that Pretoria is still the greatest pariah in the international bond market.

If the stock of a leveraged gas pipeline company looked like this (note accompanying graph), where would its $2.8 billion of long-term debt stand? The answer is: surprisingly close to par.

In a world of negatively sloped yield curves, the American yield curve is positively sloped. Whereas many other countries labor under high money-market interest rates, the United States has low ones.

Year after year, since time out of mind, the federal funds rate was the world's greatest interest rate. It was the fulcrum rate of interest in the world's leading economy. It was the interest rate that, more than any other, bore the official stamp of the Federal Reserve Board... Not this year, though.

When banks stop lending, lending no longer stops. Money-market funds, insurance companies and loans refashioned into securities have relegated commercial banks to the back of the bus of American credit.

If the recession is deepening and statehouse tax receipts are falling (as we happen to believe), you wouldn't know it from the alignment of yields in the general-obligation bond market. They are the picture of full employment.

In our pre-Christmas issue, we disclosed that a short-dated Eurobond of the Equitable Life Assurance Society of the United States was priced at the condemning yield of 22%....

On D-Day, January 15, Citicorp disclosed its fourth-quarter results, but aficionados are still buzzing about the third quarter. If you are deeper into the vault of banking than we are, you already know about form Y-9C. It is a Federal Reserve document, and it is like the universal form 10-Q but more exotic....

Shad Rowe writes from Dallas: Reckless, self-serving, incompetent lending is a crime against common sense. It is not, however, covered by statute. If it were, Don R. Dixon, the notorious owner of Vernon Savings Association, could expect to remain in prison until Hell freezes over.

We reported last fall that the dividend yield on Standard Chartered Bank PLC, the backpedaling London bank-holding company, was the highest for any British bank, ever.

If fighting in the Middle East encompasses economic warfare, one potential battleground is Amman, Jordan, home to a large commercial bank that belongs to Clearinghouse Interbank Payments System (CHIPS).

The Federal Reserve, although powerless in the short run to restore Rupert Murdoch's net worth and thus the collateral value of his debt to banks, has taken extraordinary steps to reliquefy the banking system.