President of the Federal Reserve Bank of Atlanta Dennis Lockhart spoke today to a group in New Orleans. Here are some key snippets of his speech: 

Credit markets remain quite strained. This is particularly the case in interbank markets in the United States and abroad. The interbank markets are a fundamental element of the plumbing of the financial world. Banks with excess balances put them to work by lending to other banks that have clients—companies and individuals—who need the funds.The loan portfolios of U.S. banks and financial institutions are, as you would expect, mostly dollar-denominated. But foreign banks in recent years have also built sizeable "books of business" in dollars. The dollar interbank credit contraction is a worldwide problem that affects not only our banks here but banks overseas, particularly in EuropeWhen banks lend or take on other forms of exposure to each other, they gauge the counterparty risk. In recent weeks, there has been a widespread withdrawal of confidence in counterparties that has resulted in efforts to reduce exposure.As part of this, maturities have shortened, risk spreads (typically measured as the interest rate spread over U.S. Treasuries) have widened, the cost of hedging against default risk (another measure of perceived counterparty risk) has risen dramatically, and the range of assets accepted as collateral has narrowed. Also, demand for liquidity provided by the Federal Reserve has intensified.This contraction in availability and rise of the cost of credit have worsened as well for corporate and business borrowers. We've heard anecdotes confirming this from contacts throughout the Southeast. In short, Main Street is being affected.

Here is his views on implications for the broader economy:

At the root of today's financial turmoil is housing sector weakness. In recent months, housing starts have declined sharply, and inventories of unsold new and existing homes remain high. With oversupply, house prices in most markets have continued to decline. Financial instability has affected house prices by tightening credit to potential home buyers.Prior to September, we at the Federal Reserve Bank of Atlanta had a rather downbeat outlook for the second half of 2008 and early 2009. We expected—and continue to expect—a very weak second half reflecting contracting consumer spending, weaker business investment, and slower export volume.

The news just isn't good.