Many are saying this crisis dwarfs the S&L crisis in the 80s and is more akin to the Great Depression than we would like to believe. The credit crunch is killing the real estate and credit markets. One of the issues businesses being unable to borrow money for operations. Unfortunately there is no easy fix here.
Many are wondering when is the devastation in the financial services industry going to drag the rest of the economy into the pit with it? I don't think anyone knows for sure if or when this will happen.
While many may never admit this I believe the Internet is going to play a significant role in helping the economy avoid total catastrophic meltdown. I am not suggesting that we won't have a recession or that it won't be painful for many people, but I believe the Internet will make it less painful. Here are a couple areas...
- Lending: With web sites like prosper.com and kiva.org liquid capital may still be available to some groups. It just won't be going through a bank. I don't say this is a perfect market, but it will serve the purpose of bringing borrower and lender (no matter how small) together in a market for credit that could not have existed 15 years ago.
- Retail: This is a two for one bonus. Retail is assisted by being able to create more channels to get product into the market for established stores. For other retailers the Internet aggregates small groups of buyers in specialty products in way that simply wasn't possible before the Internet. In marketing we referred to these groups as target markets that were too small and dispersed to target effectively or too small to be profitable. The Internet has changed that. Now these groups can be reached effectively via the web and using the Internet what was tiny groups have become bigger and more viable as a profitable group.