We're all connected. Everyone is going to suffer when the hangover from excess credit finally comes due. The subprime mortgage lending compromise announced today isn't going to do enough to keep people in their homes, which means it isn't going to save the portfolios of Goldman Sachs et al. Same is true, eventually, in the credit arena.
The brilliant Elizabeth Warren on Marketplace last month: What about the economy in all of this? We're often told that consumers are responsible for about two-thirds of Gross Domestic Product. Now if they start pulling back, what can we expect?
Warren: This is one of the scariest parts for me. The typical family is carrying now about two months' worth of income in credit card debt. So what's going to happen long-term? Do we have a period where all these families that are carrying all this debt simply cut back on their consumption so that they can pay off the outstanding debt loads? Is that gonna be a long, slow decline, or is it going to be a one-time smack? Either way, the consequences for the economy cannot be good.