Next credit crunch ripple on its way

The global credit crunch seems set to get worse with low-rated corporate loans in the US plummeting in value over the last few days. Banks are now trying to clear the loans at fire-sale prices, but nervous investors are pulling back from the commercial market as well as securities that are backed by student loans and municipal bonds. While default levels are not expected to reach the highs seen in the sub-prime housing sector, many investors have used borrowed money to buy into debt securities and, as prices decline, lenders are forcing the sale of the securities which magnifies any losses stemming from defaults. The credit problems are estimated to have already cost banks and investors more than $US100 billion ($111 billion).

Source: The Australian