If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse. The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy.
In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital. Investor concerns about financial institutions increased over the summer, as mortgagerelated assets deteriorated further and economic activity weakened.