Hm... That's a possibility. Lower housing values led to decreased home equity, which led to decreased consumer spending, which led to lowered expectations for b

Hm... That's a possibility. Lower housing values led to decreased home equity, which led to decreased consumer spending, which led to lowered expectations for businesses, which led to fewer loans being made. If this is true, the bailout won't work and we'll head into a recession, possibly a severe one. However, I wouldn't say that's why the financial firms are suffering. They're suffering because they all made the same bad investments. Anyway, I doubt that the situation is as simple as what I've laid out here. I don't trust my previous justification for the bailout, but even the economists who opposed it said we still need to do something (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm http://faculty.chicagogsb.edu/john.cochrane/research/Papers/...).