×
This is a good point from Paul Krugman:
And as the unknown unknowns have turned into known unknowns, the system has been experiencing postmodern bank runs. These don’t look like the old-fashioned version: with few exceptions, we’re not talking about mobs of distraught depositors pounding on closed bank doors. Instead, we’re talking about frantic phone calls and mouse clicks, as financial players pull credit lines and try to unwind counterparty risk. But the economic effects — a freezing up of credit, a downward spiral in asset values — are the same as those of the great bank runs of the 1930s.The degree to which the financial crisis has played out entirely among elites is very strange. You've not seen broad-based bank runs, or huge numbers of citizens pulling out of the market and investing in beneath-the-mattress securities. Rather, you've seen the Federal Reserve holding meetings with the CEOs of banks while financial professionals fret and fear and try to trade their way into staying one step ahead of the damage. I'm not sure if this is evidence of an apathetic citizenry or proof of the serene confidence Americans have in their institutions, but either way, it's definitely evidence of the increasingly bifurcated nature of the economy, where Wall Street not only fails to intersect Main Street, but probably couldn't even find a direct flight there. Of course, if the financial system actually collapses, and Paulson's bet that it can absorb the loss of Lehman doesn't pay off, we might find that the two are connected after all.
