The Economic Impact of the American Recovery and Reinvestment Act, Mark Zandi, Chief Economist, Moody’s Economy.com, January 21, 2009.

“The global financial system has effectively collapsed, undermining investor, household and business confidence, and pushing the economy into a lengthy and severe recession. Real GDP, employment, industrial production and retail sales are falling sharply, and unemployment is rising quickly. Policymakers are working to implement a large fiscal stimulus package; yet even with such stimulus, the economy appears headed toward its worst downturn since the Great Depression.

The proximate cause of the crisis was the collapse of the U.S. housing market and the resulting surge in mortgage loan defaults. Hundreds of billions of dollars in losses on these mortgages have undermined the financial institutions that originated and invested in them, including some of the world’s largest. Many have failed, and others are struggling to survive. Banks fear extending credit to one another, let alone to businesses and households. With the credit spigot closing, the global economy is withering. Global stock investors have dumped holdings as they come to terms with the implications for corporate earnings. A self-reinforcing adverse cycle has begun: The eroding financial system is upending the economy, putting further pressure back on the financial system as the performance of assets from credit cards to commercial mortgage loans sours.”