Understanding a Credit Crisis and Analyzing Its Factorsby Chris Seabury
A credit crisis occurs as a result of an unexpected reduction in accessibility to loans or credit and a sharp increase in the price of obtaining these loans. The credit markets are good indicators of the depth of a credit crisis. They can also provide clues as to when that crisis will ease up. To understand how to judge the severity of the crisis, we must be able to look at a number of factors, such as what is happening with U.S. Treasuries, how it is affecting the London Interbank Offered Rate (LIBOR), what effect this has on the TED spread and what all this means for commercial paper and high-yield bonds.