How does the Wall Street financial crisis affect Main Street?
When major financial institutions cannot find adequate funding, there are ripple effects that influence almost everybody. Banks and investment firms are required to hold certain amounts of cash and assets as collateral relative to their debt. The collapse of housing prices forced financial institutions to raise more money to cover their debt as asset prices declined. The scramble for capital in a crashing market caused lines of liquidity to freeze up, stalling the ability and willingness of banks to lend. What credit was available was very expensive because of the short supply. Businesses, particularly small businesses that rely on revolving short-term loans to keep their businesses running while they wait for payments to come in, have been some of the hardest hit. The lack of available lending, relative to what was available before, has forced small business to shut down, hurting local economies and employment figures.
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