It is risk. Risk had become the forgotten element in the economy, having been dismissed from the popular mind as too inhibiting to tolerate in a new era of robust consumption and quick wealth. Plentiful jobs, rising incomes, soaring stocks and easy credit helped boost confidence. And not just among America's households, but at the biggest financial institutions. When the big guys, the international banks, the big brokerage firms and the gurus, are seen as witless in the face of events, it is bound to shake confidence down below.
Reality destroys such pretenses.
For a while, soaring stocks allowed millions of Americans to believe they were rich, or at least more secure. And when you feel rich, even if you aren't, you plan, spend and borrow. It's called the wealth effect. Suddenly that wealth evaporates, and the 20 percent of discretionary income so calmly budgeted for servicing consumer loans becomes ominously large. Executive options shrink, and so do vacation plans and big houses.