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So, this is it. The financial system has crashed. Now we're finally seeing the Republican's cherished "trickle down" theories begin to work - and with a vengeance- as the damage spreads into the real economy. The basic mechanism for this is the contraction of credit, which is cutting off funds for real economic activity. Goldman Sachs and others estimate that the financial crash has contracted lending by about $2 trillion--and our economy is $15 trillion in GDP. Banks and other institutions are simply unwilling to lend. Here's the results we know of so far:
This paragraph is preceded by a chart of commercial paper (showing a trough in 2003 and growth since, with a collapse in mid-2007) and followed by charts of new and existing home sales and mortgage rates. The implication is that the collapse of the housing bubble is due to the unwillingness of banks to lend [to each other], which is a result of the collapse of the commercial paper market. However, the housing market charts peak in 2005, two years before the collapse of Asset-Backed Commercial Paper which has dried up interbank credit.

We have met the enemy, and he is us — Pogo
by Carrie (migeru at eurotrib dot com) on Wed Mar 5th, 2008 at 06:04:35 AM EST

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