Part of the problem is that mortgage loans have been sliced and diced into so many pieces (tranches?), which were sold and resold to the point that it's hard to tell exactly where the rather unsavory pieces are and when they might blow up, if at all. And, the last thing we need is for a fearful and uncertain market to panic.
Something is happening. Perhaps the extent of the problems are hard to fathom, but hopefully the banks will not make the credit crunch worse by going from very loose lending to very tight lending (a shift which affects everyone, even those without mortgages), even in other loan types.
Just remember, though: America survived the Great Depression, but it wasn't pretty.
I'm going to add one clarification to my comment: obviously, the banks should tighten lending standards, and rating agencies should be truthful when rating securitized debts. But, what I was thinking of is that bankers might panic and go from one extreme (very loose lending standards) to another (very tight lending standards), where even those with good credit and income get denied for loans.
“Something is happening. Perhaps the extent of the problems are hard to fathom, but hopefully the banks will not make the credit crunch worse by going from very loose lending to very tight lending (a shift which affects everyone, even those without mortgages), even in other loan types.”
Yep. My regional bank renigged on the $100k LOC increase for my small business, even though management met the booking benchmark the bank set for the LOC increase. They said no in July leaving me as the CEO with $100k cash shortfall over the summer for a business with 12 people. We came out on top but it was a very painful summer.
Consider that 70% of America is now small business. How many guys/girls business owners have the experience to survive such an experience? I was also fiscally responsible in my personal life so I used my home equity as payroll for the four months management took no pay. If I had used it for that nice new entertainment room or the new wheels like a lot of my upper middle class friends, I would have been sunk. How many other Americans outside of the 5% subprime screwed are not fiscally responsible and will be effected?