Thursday, October 2, 2008

Wall Street vs. Main Street - II

Another study, this one by economists at The Federal Reserve Board, look at "... the relationship between the health of the financial sector and the rest of the economy..." Crunching 30 years of data, they come to a conclusion:

"The results in this paper suggest that financial stability is connected to corporate investment, and that a deterioration in the health of the financial sector can act as a restraint on macroeconomic performance. We argue that one reason for this is that changes in financial institution health leads these institutions to tighten lending conditions and we find evidence consistent with this explanation. In addition, to a direct effect on investment, we also find that variations in the health of the financial sector also seem to amplify shocks to other parts of the economy."

Hmm, so maybe all the "Main Street" folks out there clamoring that the "Wall Street" folks should be allowed to go down the tubes should reconsider...

Distress in the Financial Sector and Economic Activity