Credit Crisis and the Consumer
April 22, 2008
As you already know, the credit markets are taking some big hits lately. Many of the major banks and lending institutions are encountering all sorts of problems that they must deal with. Industry and government officials are sending out mixed messages as to whether or not the credit mess is stabilizing or will get worse.
One fact remains, it is the average American consumer who drives the market and without access to credit that engine is bound to stall.
The Federal Reserve has acted on some issues in the hopes of loosening up the current credit tightness. In just the last few weeks, they have cut the Fed Funds rate. In the last 8 months or so they have cut the rate by three percentage points.
Their lending facilities have been tasked with implementing money auctions. A particularly helpful move was to open up their discount window to banks and other primary institutions, allowing virtually anything to be used as collateral for the loans.
So why are we not seeing results? The simple truth is that while the Fed is making it easier for banks and lending institutions to get money, those same institutions are not freeing up that money for new consumer loans. In many cases, they are using the loans to shore up their own losses and this has resulted in a stagnant credit market.
For those consumers who can wait it out, that might be the best solution for the time being. For those in dire need of new financing or credit, the best bet is to begin shopping early for the lenders who are making loans.