All Posts Tagged With: "trickle down economics"

The serious pain on Wall Street could very well translate into very real pain on Main Street. Freakonomics writer Steven Levitt adds some context to the current financial crisis:

The concern for the man on Main Street is not the bankruptcy of Lehman, per se. Rather, it is the collective inability of major financial institutions to find funding.

As their own funding dries up, the remaining financial firms will be much more cautious in extending credit to normal firms and individuals. So even for people whose own circumstances have not much changed, the cost of the credit is going to rise. For an individual or business that falls behind on payments or needs an increase in short-term credit because of the slowing economy, credit will be much harder to obtain than in recent years.

This is going to slow growth. We have not seen this much stress in the financial system since the Great Depression, so we do not have any recent history to rely upon in quantifying the magnitude of the slowdown. A recent educated guess by Jan Hatzius of Goldman Sachs suggests that G.D.P. growth will be just about 2 percentage points lower in 2008 and 2009. But as he explains, extrapolations of this sort are highly uncertain.

This is not the sort of news I typically share on a Friday, but it adds a little more context to all the scary stories about Wall Street and demonstrates how it will affect those who don’t have much tied up in Wall Street right now.