David Leonhardt does a better job than most explaining the significance of the ongoing economic crisis and its parallel to the great depression. He finally understands the need to connect the dots, from bank failure, to credit crisis to impact on your household economy.
The crucial point is that a modern economy can’t function when people can’t easily get credit. It takes a while for this to become obvious, since most companies and households don’t take out big new loans every day. But it will eventually become obvious, and painfully so. Already, a lack of car loans has caused vehicle sales to fall further.
He leads off with an interesting parable, I’ll give you the open and the punchline from his conclusion, the rest is worth a read.
In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.
A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again….
But in the end, this really isn’t about Wall Street. It’s about reducing the risk that something really bad happens. It’s about limiting the damage from the past decade’s financial excesses. Unfortunately, there is no way to accomplish that without also extending a helping hand to Wall Street. That is where our credit markets are, and we need them to start working again.
Update: Krugman has a solid analysis of the two flawed narratives of the crisis. I don’t know if this Krugman comment is something to inspire confidence or deeper concern: “The real financial rescue still lies in the future, probably under the Obama administration.”