The credit crunch has become a real-world problem because when the cost of debt capital rises, everything is worth less. How are investment banks shaping up for the challenge ahead? Alex Chambers reports.
RARELY HAVE THE fortunes of the fixed-income markets been so keenly scrutinized. Six long months after the debt market first seized up it is still not functioning as it should. Normally the credit cycle turns in response to economic slowdown. But except for US sub-prime mortgage-backed securitizations and associated securities, most disintermediated credit has not yet deteriorated significantly. Now the fear is that economies will falter because of the credit cycle or, more specifically, the credit crunch. Many analysts are saying that the US has already entered into a recession. It will not be a big surprise if the UK and Spanish economies both begin to feel the effects of the fallout from the effective closure of the securitization market on their housing sectors.
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