The credit crunch

Credit, you are being told, has “locked up” or “frozen.” Without credit, consumers cannot purchase and businesses cannot invest. No, businesses can’t even stay in business because there’s no credit.

Credit, in fact, has not locked up or frozen. Plenty of lenders, particularly those healthy banks involved in the TARP CPP funds, are lending at levels comparable to or greater than before the so-called credit freeze. What has happened is that lenders are calculating risk far more rigidly and rigorously than they had previously.

Credit qualifications, indeed, have tightened and will continue to do so. We are in an economy where credit of all stripes is inherently more risky, so folks and businesses who would have qualified for loans or financing in the past are greater credit risks because of the prospect of losing their job or their business. Now, as the economy continues to contract, the risk will become high enough that credit may effectively lock up, and that’s what the panic-button folks are trying to prevent.