The OCC points at the aggressive marketing for home equity loans by banks as one such result. And these loans are increasingly being taken on not for capital projects such as home additions or education, but for regular spending needs. As such, we have a situation where large swaths of the commercial and individual debtholders are overleveraged. In the past, consumer loans were thought to be a good hedge against commercial downturns, since the banks could loosen consumer debt standards to weather short-term problems on the commercial side. But not now.
Banks have no place to go but to write more risky loans.
This is all to say that you should be very, very careful. Debt implosions come very quickly, as a few defaults at overextended institutions can expand very quickly. The only direct tool the government has, interest rates, takes considerable time to flow through to make a difference in the overall loan mix. These companies are a relatively minor part of our economy, but they have relied heavily upon billions in debt financing to build out capital-intensive networks, from banks, vendors, and other sources and have never been operationally nor cash flow positive. Their bonds are currently being pummeled to the point where they are worth pennies on the dollar.