Will it be harder to get credit?
The problems of subprime loans hint at broader risks in financial markets.
from the July 13, 2007 edition
Page 3 of 4
The availability of home loans has been a vital underpinning of America's economic expansion since 2001. More broadly, this has been a global expansion built on credit – from leveraged buyouts to ordinary business borrowing.
Through large investors and investment firms, all these debt markets are somewhat interconnected. So the risk is that trouble in one sector could spur doubts about the stability of others.
"The subprime crisis is not an isolated event…. It will not remain confined to a Petri dish," William Gross, a widely watched bond-fund manager at PIMCO, wrote this month. "The willingness to extend credit in other areas … should feel the cooling Arctic winds of a liquidity constriction."
Still, Mr. Gross and other analysts stop short of forecasting a full-scale crisis.
In fact, although the news from credit-rating agencies seemed to rattle stock traders earlier this week, markets have appeared resilient since then. In trading Thursday morning, investors pushed the Dow Jones Industrial Average above its record high, set back in early June.
Times of crisis
In a true credit crunch, even borrowers with solid finances find it hard to get loans – and economic growth suffers as a result. This happens only rarely, because since the Great Depression central bankers have been ready to open monetary spigots when a crisis warrants.
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