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Daily Market Commentary

Perhaps a little late on the ball, but an important story nonetheless, the New York Times is reporting that mortgage losses are spurring banks to reduce corporate loans.  Not only has lending activity to the consumer sector slowed, now it is spreading into the corporate sector.

"Banks are significantly reducing forms of credit vital to American companies in the backlash from the subprime-mortgage crisis, and the slowdown threatens to further hamper the U.S. economy. Even healthy businesses are finding it difficult to borrow money as banks, burned by the fallout from looser lending standards, overcorrect and take a much closer look at repayment ability."

It is particularly concerning to see this spreading.  Credit is the oil that lubricates the economy, and since the financial services sector is at the centre of the current slowdown, the real worry is that in an effort to repair their own balance sheets, they stop taking even reasonable credit risks by lending.  Once the lending stops, the rest of the economy will suffer.  Since the mortgage mess - which is well beyond subprime, as the NYT reported - has blossomed to affect worldwide banks, there is the possibility that this type of behaviour will go beyond the US borders

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