In addition to the on-going saga of banking-sector the broader credit markets are beginning to clog up again. The WSJ runs a front page story on credit-spreads widening out as investors concentrate their assets in only the highest-quality assets while forsaking corporate debt. One of the gravest concerns of investors is uncertainty over government policies that rejigger the capital structure, i.e. who gets paid first when things go bad. Things like the mortgage “cram-down” in which bankrupty judges can rewrite mortgage contracts is undermining investor confidence as well. It used to be: a dealing is a deal. Now it is: we’ll let you know.
As long as these uncertainties remain, recovery will lag. If recovery lags, risk aversion will saty high and the dollar will stay strong since most of the world’s debt is denominated in dollars and we live in a time of mass deleveraging.
