Credit markets weighing down economy

Ashley Milne-Tyte Aug 26, 2008
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Credit markets weighing down economy

Ashley Milne-Tyte Aug 26, 2008
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KAI RYSSDAL: Let me take a second right at the start here and point out that you can only know a market’s hit bottom only after the bounce back up has already started. So there’s a case to be made that all the experts out there who’re whispering the word — bottom — are taking something of a leap of faith. It’s a leap grounded mostly in this fact revealed in a couple of key surveys out today: That the rate of decline in some important indicators, like sales and prices, seems to have slowed. Add a rise in consumer confidence and a rally in the dollar that looks like it’s holding and that was enough to make for a generally positive economic mood.

But listen, do you remember the credit markets, arguably the source of much of our trouble? Poke around in there and not everybody likes what they find.

From New York, Ashley Milne-Tyte has more.


Ashley Milne-Tyte: Today’s economic news may sound positive, but market watchers say it doesn’t add up to a trend.

Diane Vazza heads global fixed income research at Standard & Poors. She says what does make a trend is financial services companies’ reluctance to lend money. They’re jacking up their rates to shield themselves in case borrowers can’t repay. Which, she says, could well happen.

Diane Vazza: The credit markets really have at least another 18 months of, you know, of fairly gut-wrenching problems to work out. We’re expecting that, you know, there will be a bottom in the recession in first quarter of 2009.

The financial sector’s health is key to the wider economy’s recovery, says Marilyn Cohen of Envision Capital Management. She says financial firms need to come clean about their debt.

Marilyn Cohen: I will be very, very leery until we see the write-downs and the write-offs start to decline. And not an announcement by one bank or one brokerage, but by multiple banks and brokerage firms.

The credit markets can also affect housing. Brian Gendreau of ING Investment Management says while the Fed may have lowered interest rates, banks are far less willing to extend credit to regular customers…

Brian Gendreau: So, in effect, what’s happening is the credit markets are undoing the beneficial effects of the Fed easing. We may get sort of another downswing in the housing market if mortgages aren’t available, or if they’re available only at rates that are not affordable.

He says the economy won’t recover until lenders believe the housing market’s problems are well and truly over.

In New York I’m Ashley Milne-Tyte for Marketplace.

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