Anxiety rises as the era of easy credit comes to an abrupt end

ByABC News
September 18, 2008, 11:54 AM

— -- The years of easy money were fun while they lasted. Banks and credit card providers were so flush with cash that they could help virtually anyone including many who had trouble juggling their bills pay for whatever they wanted.

But the party's over.

That's been marked by the shuddering collapse of investment bank Lehman Bros., the sale of Merrill Lynch to Bank of America, the federal government's $30 billion loan to foster the sale of investment bank Bear Stearns, its $200 billion injection to mortgage backers Freddie Mac and Fannie Mae, and its $85 billion loan to insurance provider American International Group.

We've entered a period of tight credit which could mean jobs lost, retirement plans pruned, college deferred and lifestyles diminished.

Across the nation, Americans know that something's wrong.

Nearly one-quarter of adults 23% believe the U.S. economy is in a depression, according to a USA TODAY/Gallup Poll taken Monday and Tuesday. That's nearly double the 12% who said so in February.

People haven't lost hope. Nearly half 47% say they expect the U.S. economy to be growing a year from now. That's roughly unchanged from the 44% who expressed the same view in the earlier poll.

But amid the rush of bad financial news, concerns are increasing.

Marilyn Landis, a longtime homeowner and businesswoman in Cleveland, recently saw how dramatically the financial world is changing when her credit card rate shot up to 27% from 3% after she bought $7,000 worth of new computers for her financial consulting firm.

Landis, a former commercial lender who says she has excellent credit, says her bank explained that her rate rose because she was closer to her credit limit. Meanwhile, Landis says, she can't get a home equity loan to expand her business because her home's value hasn't risen enough thanks to the housing market slump.

Her firm is still doing well, but Landis says she and many clients are increasingly fearful of the spiraling damage from the financial crunch, as more small to midsize businesses and thousands of their customers find their credit lines capped by banks.

"It's like throwing millions of stones in a lake and watching the economic ripples," Landis says. "That really worries me."

The complications stemming from the credit crunch worsened Wednesday as investors bailed out of stocks for the second time in three days, causing a drop in the Dow of more than 7% this week. On Wednesday, many investors saw the AIG bailout as a sign the government believes the nation's financial system can't withstand another shock.

Investors rushed to ultrasafe, three-month Treasuries, driving the yield to the lowest since February 1941, says Bryan Taylor of Global Financial Data. Meanwhile, a popular measure of investors' nervousness, the CBOE Volatility Index, jumped 20%.