To be sure, these developments may well lead to a healthier financial system in the medium to long term: Increased investor scrutiny of structured credit products is likely to lead to greater transparency in these products and more rigor in the credit-rating process.
And greater caution on the part of investors seems appropriate given the very narrow spreads and the loosening in some underwriting standards seen before the recent episode began. In the shorter term, however, these developments do imply a greater measure of financial restraint on economic growth as credit becomes more expensive and difficult to obtain.