Casey Mulligan argues that the financial crisis isn't as big a deal as everyone says.
The non-financial sectors of our economy will not suffer much from even a prolonged banking crisis, because the general economic importance of banks has been highly exaggerated.
So, if you are not employed by the financial industry (94 percent of you are not), don't worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.
I'm skeptical of the bank bailout myself; it seems like it's going to be a way for Bush's buddies to get their money (if they decide to use it; I've read that some bankers don't like the way it would cramp their style and may try to tough it out) and leave our grandchildren holding the bag.
I think he's right in the narrow sense that the financial sector's troubles aren't going to drag everything down by themselves, but the necessary return to more conservative lending by the survivors is going to keep credit tight; the people who defaulted on mortgages will be out of the loop for a while. There's also the fact that lots of people have hit their limit in debt and are having to cut back to clear that up.
This combination of fewer people able to get credit and those who have it not wanting anymore will drag down the economy as people spend less. The auto industry is already getting hit hard by the combination of tighter credit and public caution, and others will feel it soon. Lots of things are ailing at the same time, and it's going to take a while for all of them to heal.