Wall Street's tremors to reach Main Street
The biggest impact of Lehman's bankruptcy and other recent turmoil could be tighter credit.
These are desperate times on Wall Street. But what does it mean for Main Street?Skip to next paragraph
Subscribe Today to the Monitor
In the postwar era, Mom and Pop could usually shrug their shoulders when the pin-striped set worried about financial Armageddon. Perhaps not this time. Turmoil on Wall Street – falling stock prices, megamergers, and bankruptcies – is likely to weaken an already shaky economy. The biggest impact? The availability of credit.
Since March nervous bankers have been making loans as reluctantly as Ebenezer Scrooge. Now, there's concern the mounting losses in the financial sector will make them even more parsimonous. Billions of dollars spent to shore up Wall Street may eventually affect the ability of the local car dealers to finance their inventory and maybe even make it tougher to get a loan to buy a new boat or tack on an extension to the house. At the very least, economists expect even the most optimistic Chamber of Commerce types to tone it down some.
"This is more complicated than a B-rated Shakespeare drama," says Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore. "But one way this is going to translate back into Main Street is that the caution levels are rising."
Rising caution levels means bankers are now moving more deeply into survival mode. Starting this past March, the growth of credit availability has shrunk dramatically. "If we continue like this, we will be in big trouble," says Lyle Gramley, a consulting economist at the Stanford Group in Washington. "To date the recession has been mild, but there is concern it could become an accumulating recession where the unemployment rate begins to rocket up and business cuts back on outlays."
Not all the changes on Wall Street, however, will resonate in Des Moines. For example, Bank of America's takeover of Merrill Lynch may not have an impact on the bank's ability to make loans. "If it's a stock swap that is not resulting in any cash outlays, it should not make any difference in the bank's ability to make loans," says Mr. Gramley.