The article talks about how the lending of credit facilities has decreased substantially in the United States as well as in Europe, the Middle East, and Africa (EMEA). While the slowdown has been substantially less in EMEA than in the United States it is still very prominent. Reuters Loan Pricing Corporation has said that longer maturities are the lowest they have been in 19 years and which shows that no one wants to loan for extended periods of time. The volume of three year loans has risen from 2007 to 2008 by almost four times showing that some of the loans are being shortened and not completely eliminated.
The article discusses the shorter loans, higher interest rates, and decreased volume in terms of numbers, but does not deal with the overall effect this will have on the companies. The first thought that comes to mind is that the holiday season is going to be rough on families because they might not have enough money for the usual travel and purchases that go on. This will return to hurt the stores because they rely on their holiday sales to pull them through. When holiday season comes into full swing it will be interesting to see the effects on the market. Current loans that have been taken out might not be able to be paid back thus making the credit situation worse; more companies may go bankrupt after the holiday season is over.
From the data it appears as though the tightening of credit lines is just starting to hit Europe and will most likely follow the same path that credit has in the United States. This will cause increasing problems for global corporations as their loans in other countries also get cut off. It will also hurt our economy as business overseas fall under because they won't be able to provide the United States with the imports that it usually takes in. This could be both good and bad for the United States because while it will decrease our reliance on other countries, it will probably also cause a rise in prices. Additionally, it might cause a slide back from the globalization that we have seen over the past few years during which economies were striving. Less companies will expand overseas in the coming years because they don't have the funds to do so which will, for the time being, stop the sending of jobs overseas. Globalization will have to be put on hold until companies are able to pay off their debts and banks increase their lending again.
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Sakoui, Anousha. "Syndicated lending declines as banks tighten credit facilities." Financial Times 26 Sept 2008 8 Oct 2008 http://www.ft.com/cms/s/0/636009ec-8b63-11dd-b634-0000779fd18c.html?nclick_check=1.
People do not trust banks for loans. Current data shows record low confidence levels of borrowers after the credit crunch. Let us hope that with the government coming up with rescue packages day after day, one of the plans will boost consumer confidence, and will most importantly provide funds to banks so that they could loan money to each other and smaller businesses.
The important thing in solving this crisis is to make sure that all of the major worldwide banks have the capital to lend again. This is being done with the recent initiatives by the US fed, Congress, and international governments. While some tax payers may complain, I feel that they simply do not understand the magnitude of the problem. Many of the people who complain about a raise in their taxes are the same people who will be rejected for a mortgage or a car loan. If people really want to maintain the lifestyle that we currently lead, then they all need to bight the bullet and support crisis management in order for our credit facilities to open up again.
Moreover, I think governments around the world are not investing in these initiatives with no strings attached. Much more lending regulation will come out of this crisis, as well as probably a net surplus for the government once they are able to sell their recently purchased securities on the open market.
At the end of the day, this world needs credit to grow and we need everyone on board to make sure it is preserved.
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