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Posted by: Michael Mandel on November 19
Here’s another way to think of the consumer crunch. For years banks and financial institutions have treated lending to consumers as a low-risk activity. Individual Americans might default, but consumer loans in the aggregate were a low-risk, high-return asset.
Now the American consumer is getting marked to market. Lenders are realizing that lending to consumers can be a risky business, and the assets are not worth as much as they thought.
The result is that the expected long-term present value of consumer borrowing and spending is about to shift down dramatically. Is this good or bad? This will require a big reassessment of long term forecasts of the U.S. economy.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.