From Deseret News archives:
Credit: How will the crisis affect Utah consumers?
As the crisis drags on, you see your investments on a harrowing roller coaster ride. You hear credit and loans are harder to come by.
So why are you still getting credit card offers in the mail? Why, if there really is little money to be loaned, are local financial institutions courting you to get you to borrow?
What if the government doesn't step in and just lets the crisis work itself out? How might that affect Utah consumers?
• Where consumers fit in
The bankruptcy of Lehman Brothers was a bigger deal to consumers than they might know, said Scott Schaefer, professor of finance at the University of Utah. Lehman Brothers is an investment bank. It filed for bankruptcy last month. Some of the people Lehman owed money were other banks. Now those other banks don't have those assets anymore, so they fail, too, Schaefer said.
As a result, people from bus drivers to billionaire investors to banks aren't rushing to put money into banks, out of fear they will fail.
The TED spread is usually around a half percent, Schaefer said. It's now 3 percent setting off alarm bells for a federal government rescue.
• How does that affect me?
The less money that goes into banks, the less they have available to consumers.
People who have good credit are going to have a harder time borrowing, Schaefer said. Small businesses may struggle some say they already are to secure short-term loans to pay their employees.
"That's the really scary thing that might happen here: Banks aren't able to make good investments in Utah, like lend to people of good credit and means to buy houses, or entrepreneurs with great ideas," Schaefer said. "If they can't do that, there's going to be a lot of houses that don't get bought worse than we see now and there's going to be a lot of great businesses that don't get started. That's the problem."
• Then why am I being courted to borrow?
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