Living in a world with less credit

Leverage was the mother's milk of Wall Street — and of Main Street — for the
past 20 years. Leverage meant debt, specifically the number of dollars you could
borrow for every dollar of wealth you had. It meant borrowing other people's
money to invest in something you wanted to invest in, or to buy something you
wanted to buy. On Wall Street, debt funded investments in pretty much everything
a financial firm could bet on, including the toxic mortgage-backed securities
that led the way into this crisis. On Main Street, it meant borrowing to buy a
house or a condo — maybe two — then perhaps borrowing again off the increasing
value of that property to pay for something else: a flat-screen TV, a new set of
golf clubs, your daughter's braces.

The debt binge was fueled by easy money and the belief that prices of assets —
those of houses in particular — never went down; only interest rates did. That
era is over. It will be replaced by what will be one of the more painful, and
consequential, economic chapters in our history: the great deleveraging of
America. On Wall Street, the largest financial institutions on the planet are
reducing their debt and trying to build up capital, which once upon a time was
the seed corn of their business, and now must be again. Retail banks like
Wachovia and investment banks like Morgan Stanley have been so burned by their
own reckless use of debt that only recently — and after unprecedented government
intervention — have they been willing to once again make the most basic
short-term loans to one another. The gradual thawing of the overnight-lending
market, which seemed to begin on Monday, Oct. 20, was the first sign that Wall
Street's credit markets were, however haltingly, regaining some sense of
equilibrium after the previous, harrowing month.

from TIME: http://www.time.com/time/business/article/0,8599,1853129,00.html

dun really understand what all this means, but it sounds pretty scary. i'm taking econs now, find it quite interesting and hopefully it will help me make sense of what is happening now.