Credit crunch not contained

From the Wall Street Journal:

New Hitches In Markets May Widen Credit Woes
By LIZ RAPPAPORT, CARRICK MOLLENKAMP and KAREN RICHARDSON
February 11, 2008; Page A1

A widening array of financial-market problems threatens to trigger a new phase in the global credit crunch, extending it beyond the risky mortgages that have cost banks and investors more than $100 billion in losses and helped push the U.S. economy toward recession.

In the past few days, low-rated corporate loans — the kind that fueled the buyout boom of recent years — have plummeted in value. As a result, banks are expected to try to unload some of those loans this week at fire-sale prices.

Nervous buyers also have retreated in recent days from the market for securities backed by student loans and municipal bonds, roiling some corners of the short-term money markets. Similarly, investors have recoiled from debt backed by commercial real estate, such as office buildings.

Over the weekend, the world’s top banking authorities warned that the U.S.-led economic slowdown and continued uncertainty about securities could lead banks to further reduce their lending, and choke off economic activity.

One sign of investors’ anxiety: Standard & Poor’s said its index of the prices on high-risk corporate loans fell to a record low of 86.28 cents on the dollar at the end of last week.

Few market participants expect defaults on any of this debt to match the elevated levels seen in last year’s rout in the market for risky, or subprime, mortgages. But collectively, they threaten to deepen the financial system’s wounds and create a growing pileup of shaky assets on the books of banks.