Wall Street Rumbling Means Little on Main Street

Financial meltdown has small effect on 'real economy': Kaletsky
By Jason Farago,  Newser Staff
Posted Sep 15, 2008 9:29 AM CDT
"The danger" in the current market setup, Kaletsky writes, "is that financial institutions are much more vulnerable to sudden withdrawals of liquidity or loss of confidence."   (AP Photo)
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(Newser) – Fannie and Freddie have been nationalized, Lehman has collapsed, Merrill Lynch has been bought out—an economic disaster, right? Not really, Anatole Kaletsky writes in the Times of London: The US economy is actually showing signs of improvement. More than ever, "there is no contradiction between expecting a recovery, or at least stability, in the US economy and chaos in its financial system."

While unemployment is up slightly and housing prices are down, the US economy nevertheless grew strongly in the last quarter, and estimates are being revised upward. Overly lax regulation has distorted the financial market and expanded the gap between Wall Street and the "real economy." But as financial institutions make huge cuts in borrowing and lending, the effect on the real economy will not be great.