When banks and thrifts dominated lending, credit crunches occurred through numerous individual meetings and phone calls, as loan officers across the country began toughening standards and turning away marginal borrowers. That may in fact be happening now, though to what extent is unclear. By contrast, a louder and more violent credit crunch is now under way in the capital markets, which have a deeper role in financing the economy. Interest rates have risen on a panoply of securities, some of which didn't even exist a decade ago. This sort of credit crunch is different, and in some ways more disruptive, than the old one.
Securities markets can be far more efficient than bankers at pricing risk in normal times.
But in abnormal times, they can be prone to wild swings in sentiment that produce excesses both in extending capital and holding it back. The global turmoil that has rolled through U.S. markets since July could hurt borrowers, from property companies to car buyers, whose fortunes should be divorced from events abroad. In an interview this week, Mr. Kaufman said that appears to be occurring now. In this world, price changes, because they're in securitized form, are readily noticeable. When banking dominated, it was only belatedly that you saw there was a change in the value of assets.