Newspaper article THE JOURNAL RECORD

Credit Crunch Result of Unofficial Recession

Newspaper article THE JOURNAL RECORD

Credit Crunch Result of Unofficial Recession

Article excerpt

NEW YORK - To hear some people tell it, one of the most painful elements of the Unofficial Recession of 1990 has been a ``credit crunch.''

Loans are expensive and increasingly hard to get, the argument goes, holding back the progress of economic growth and aggravating problems in real estate and construction.

Now the ripple effects are said to be spreading in the job market and consumer spending, as demonstrated by steady declines in government figures on retail sales since last winter.

The scope and severity of the problem are subjects of much dispute. Some economists - among them Alan Greenspan, chairman of the Federal Reserve - say a classic credit squeeze, like those that came with formally recognized recessions of the recent past, hasn't occurred.

``It may emerge,'' Greenspan said in testimony June 21 to the Senate Banking Committee. ``But the answer today is no.''

Added David Resler, chief economist at the investment firm of Nomura Securities International in New York, ``there's little objective evidence that access to the credit markets has been curtailed.''

That has failed to convince the skeptics, however.

``No matter what Mr. Greenspan says, the Fed has created a money crunch,'' declared H. Erich Heinemann, chief economist at Wall Street's Ladenburg, Thalmann & Co. ``As a result, both the demand for and the supply of credit have dropped.''

Crunch or no crunch, just about every analyst in the financial world agrees that attitudes toward credit have changed dramatically since the free-spending, free-lending days of the mid-1980s.

Within the first six months of 1990, Drexel Burnham Lambert, the kingpin of the junk-bond business, collapsed, and Coniston Partners, a prominent force in corporate takeovers, announced plans to dissolve most of its activities.

Donald Trump, celebrated developer and deal-maker of the '80s, now makes headlines as a beleaguered debtor.

``Evidently, saving is on the rise and borrowing on the decline,'' summarized financial writer James Grant in his newsletter, Grant's Interest Rate Observer, a prominent critic of unbridled lending.

This swing in social and financial values is widely portrayed as a natural reaction to the excesses of the '80s. Among contributing forces:

- The savings and loan crisis.

- The decline of junk bonds from investors' favor.

- Real-estate loan problems at banks in the Northeast and other areas around the country.

A recent crackdown by regulatory agencies on bank lending practices is widely said to have accelerated the trend. …

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