Monday, September 15, 2008

The Financial Crisis and You

From The Curious Capitalist at

For the great majority of Americans who don't happen to work in the financial industry, the ramifications of all this turmoil on Wall Street remain hard to assess. ATMs are still dispensing cash, credit card offers keep arriving in the mail, and it's not even all that hard to get a mortgage--if your credit's okay and you can actually afford the monthly payments.

There is less lending overall, and that depresses economic activity. But with oil prices dropping again today, the single greatest scourge of American consumers this year--the high price of gasoline--is due for a further pullback. In New York and a few hard-hit real estate markets, this is a big-time crisis, the biggest since the Great Depression. For the rest of the country, the jury's still out.

And from The Times Online

With Washington now using its own credit rating to increase the supply of new mortgages to US homeowners, the hints of stability that were already emerging in the US property market will probably turn into recovery sooner than expected.

The main explanation for the gap between financial and economic performance, [in the UK] and in the United States, lies in the dominant role of expectations and regulation in financial markets. Because financial markets anticipate economic reality instead of simply responding to events, they are inherently prone to self-reinforcing cycles of euphoria and panic.

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