Daily Archives: March 5, 2009

By Edi Karni

Despite extraordinary government largesse intended to increase the availability of loanable funds, consumers and businesses alike are finding it hard to access credit, with grave consequences for the US economy.

The increased uncertainty caused by the worldwide recession means that loans are riskier, leaving banks reluctant to extend credit. In return for taking on this increased risk, banks must raise the interest rates they charge. However, the economic slowdown has reduced expected returns for businesses, making it difficult for prospective borrowers to bear the burden of higher rates. Consequently, fewer projects receive the financing they need.