But How Will It Affect Me?

Filed under: Understanding The Crisis

We just heard the This American Life story Alex and I did with Ira, about the financial crisis.

As soon as it was over, my dad and my uncle called to say they liked it a lot but still had a crucial question: you say it's scary, but how is it scary to me? How does the crisis affect regular people?

I do think I could have done a better job of laying this out.

We will be focusing on this question intensely over the coming weeks. The truth is, the crisis is still somewhat contained to big banks and large corporations. It is harder for people to get a loan, but it's far from impossible.

It's hard to do good narrative journalism about a thing that might happen. It's always easier to tell good, juicy stories about things that have happened, already, to real people.

Here's what I'm afraid of, why I said I'm scared:

- Banks will more fully stop lending to each other.

- When banks can't borrow money from other banks, they can't lend money out to people and businesses.

- It will be hard for everyone to borrow. Even people and businesses who are completely trustworthy and doing great work won't be able to get a loan. Your boss, maybe, can't get the usual credit to make sure they make payroll. Your local grocery store can't get a credit line to buy stock.

- Suddenly, a lot of people are out of work, stores and other businesses start shutting down.

- You can see how this can reinforce itself--people out of work don't spend money, which means more stores close because they don't have customers, which means more store employees lose their jobs. And on and on.

This kind of thing happens in every recession and, eventually, it rights itself.

The fear, here, is that the situation will be far more severe and far less able to right itself because of the trauma in the financial system.

I'm certainly not saying this is absolutely going to happen. But it does seem possible. And that sure is scary.

Adam Davidson

12:32 PM ET | 10- 4-2008 | permalink

comments | | e-mail