In fact, bonds of PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) had CDS spreads even higher than 400 bps. The combination of sluggish activity, bailouts and fiscal stimulus measures have led to ballooning of fiscal deficits and public debt/GDP ratios in major advanced economies and have raised concerns over fiscal sustainability.
Banks can create money to make loans, and in the process can increase the total purchasing power in the economy. In summary, therefore, the presence of credit facilities, financed out of normal savings, is an essential and necessary element of all modern economies.