Ever since Standard and Poor downgraded the U.S.'s credit rating, there has been speculation that there will be a second recession. There are many reasons for this.
Foremost among them is deregulation. During the last decade leading up to the first recession, deregulation ran rampant. The Depression-era Glass-Steagal Act was repealed by President Clinton, and allowed commercial and investment banks to become one. This allowed for the markets to self-regulate, which was difficult for bankers to do, especially when faced with tens-of-thousand dollar bonuses. It wasn't just the investment banks that failed to self-regulate; it was also the Wall Street credit rating agencies. By giving better ratings more easily, not only did they defeat the purpose of their existence, but mortgage-backed securities were bought up and sold at much greater value than they were worth. Compounded with the beginnings of a credit bubble was the housing bubble, which was a result of adjustable rate mortgages being issued to about 80% of subprime borrowers. Fixed-rate mortgages were no longer the norm as they had been since 1982.
As is the case in all bubbles, the trouble comes from loosening standards. Riskier assets begin to look profitable as a wave of consumer confidence buoys credit agencies. For example, Frannie Mae and Freddie Mac are government sponsored enterprises (GSE) that bought over half a trillion dollars in very risky Alt-A mortgages. By the time the shadow banking system had grown to be as large as the traditional depository banking system , it was clear it wasn't being regulated effectively and it was too late.
Over the past three years and after two rounds of quantitative easing, GDP growth has still been anemic. Today there are signs that there may be a double dip recession in the immediate future, especially with confidence lacking in the United States as well as the weaker countries in Europe, such as Greece, Spain, Italy, and Ireland. There is a chance that there could be a third round of quantitative easing, but it is more likely that the government will raise taxes for the wealthy.
These are contributing factors as to why it is harder for many to obtain business working capital today than it was five years ago. Small business financing is still an option, although, similarly, it is not as easy to obtain as it once was. While it's very likely that the worst is behind us, the rest of this decade will probably mean economic struggles for Western Europe and the United States as a functioning 21st century economic system falls into place.
Author Resource:-
Max Advance is your source for all your business financing needs. We offer a full line of small business financing and payment services to help small businesses grow and thrive including merchant cash advance, small business financing, business working capital and more!
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