The Financing Squeeze

Both the banks and the markets are turning off the spigots

To hear Federal Reserve Chairman Alan Greenspan tell it, the U.S. owes a lot of its economic success over the past decade to the flexibility of its financial system. When U.S. banks savagely cut back on credit in 1990 following a collapse in property prices, American companies were able to turn to the capital markets for the financing they needed. That helped keep the last recession short and mild. And when the financial markets seized up in late 1998 after Russia's debt default, companies turned around and tapped banks for money, letting the economic expansion continue uninterrupted.

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