Normal? It's more like a cliff-hanger

Take private equity. The best calculations say $350 billion (£174 billion) of loan debt has been underwritten by investment banks for deals the industry has done and which they have been unable to pass on. One-third of this, in round numbers, is down to KKR deals - Alliance Boots, TXU and First Data - and yet the firm is still maintaining the fiction that it is on course to go public.

That is not the real story though. The informed guesses as to what this debt is worth put it in a range of 92p to 95p in the pound or cents in the dollar. Being generous and taking the higher number, that means the loss on the total debt package is 5%, which amounts in cash terms to a loss to the underwriters of $17.5 billion - which they have yet to recognise and absorb officially on their balance sheet.

Remember that is the generous figure - it could be, especially if the economy begins to slow, that the clearing price is lower and the loss higher. That debt is a huge millstone round the necks of the investment banks.

Remember, too, that it will not be evenly spread. Another of the cheerful sums doing the rounds is that if the debt held by one particular investment bank was written down by just 10%, it would wipe out the entire year's global profits across all activities for that investment bank. They are, as one of the executives said to me the other day, "having to scrape a bit for their money" in the inter-bank market. No bonuses there then - and think what that will do to the London economy.

Mind you, the debt they are stuck with might cost them less than some of the stuff they have recently sold. Across Europe, indeed across the world, there are end-investors waking up to the fact that the value of the exotic products they have bought has plunged.

In the great unravelling, it is not behaving as the investment bankers said it would when they sold it to them in the heady days of last summer. So the institutions are reaching for their lawyers and moving to sue the issuing banks. Claims of £100 million upwards are stacking up like tins of beans in Tesco. The doors are opening on a litigation nightmare.

Meanwhile, the commercial banks - the likes of HBOS and RBS - who have been cheerleaders of the private-equity boom have just stopped lending. One private-equity house put together a 1 billion (£700 million) deal last week but had to negotiate with 15 different banks to get each to take a tranche of debt to get it done - and imagine the fun the banks had negotiating that.

The house reckons it has no chance of getting a 5billion deal away for six to nine months. On the other side, the big banks know they can't syndicate anything, so any deal they back will require them to supply all the debt. At a stretch, some of them could go to £300 million - but it would be quite a stretch.

The bottom line is that big private-equity deals are dead in the water. The underpinning they gave to stockmarket prices has gone. And the private-equity firms will no longer be able to take in each others' washing - selling to each other in secondary and tertiary deals - so they will find it harder to exit and crystallise profits. The longer they hold, the lower their annualised returns, so their performance will start to drop.

Meanwhile, published interest rates are meaningless. I heard yesterday of a borrower wanting to raise no-risk money against a letter of credit for a property buy. The bank wanted 8% for one-year money.

Elsewhere, people talk about Libor being high, but the reality is that many banks refuse to deal even at the published rates. Others are so short of money they are doing repo deals with investing institutions to get liquidity that way. That similarly does not sound normal.

The next big question is who will follow Northern Rock into the casualty ward. An awful lot of people on the inside expect another bailout. While the laws of libel stop me naming the suspects, it is not difficult to do a trawl of banks whose loan books seem to have expanded much faster than their deposit base in recent years. They may get through by massive belt-tightening and regular Hail Mary's but I would not count on it.

Note that all this mess is out there now before we come to the legacy of some of the past lending - and particularly some of the stuff done on commercial property. Another true story sums this up. It has become customary in property auctions in the past few years for some people to get so carried away they bought property sight unseen.

But finance was no problem. Commercial bankers were cruising the auction rooms offering money to every winning bidder. I don't envy the chap whose job it is to go and look at it when the keys are handed back.

Most of all, what is happening in the financial world feels like the cartoon character who runs off a cliff and keeps running in mid-air for a few tantalising seconds. In the cartoon world, that is normal. But then he plunges.