Puerto Rico Economic Pulse ©

April 2008: Are we in the midst of a credit crunch?

An outlook of current credit markets

The sub-prime crisis in the US has led to record home foreclosures, some lenders going out of business, and financial institutions suffering multibillion losses as mortgage-backed investments went sour. Many argue that this has already unleashed a cascading effect throughout financial intermediaries and other areas of the economy. Though apparently not as severe as in the US, there is evidence that sub-prime lending did take place in PR and now the financial industry is facing this and other demons. The end result is that in a credit crunch, lenders stop lending and credit becomes tough to obtain. We attempt to answer the question whether we are currently in the midst of a credit crunch or not.