THE REAL WORLD….Steven Pearlstein today:

What started out as a credit crisis and then morphed into a broader financial crisis has finally worked its way into the real economy. That economic downturn — a recession, inevitably — is beginning to wash back on the already weakened financial sector, creating the kind of self-reinforcing vicious cycle that is difficult to control.

….As part of that “de-leveraging” process, households and some businesses are being forced to reduce their indebtedness, either by paying it down or admitting that they can’t. But it is in the financial sector, where debt was piled on debt in ever-more complex arrangements, that things have begun to get real dicey. Prices for many credit instruments have collapsed, forcing banks and investment houses to take billions of dollars of real or paper losses. Meanwhile, creating new credit has been dramatically curtailed.

Honest, Jonah, there’s nothing “mental” about this. It’s as real as taxes. Phil Gramm wasn’t being honest, he was being clueless.

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