Credit crunch fallout could linger in 2009

Much to the shock of many economists and the chagrin of politicians, the credit crunch hung around, turning a year old this summer.

What's worse, the country will deal with the credit crunch wreckage throughout this year and well into 2009, said Mark Zandi, chief economist and co-founder of Moody's Economy.com.

Zandi predicts that more companies, including trucking companies, construction, media and even some law firms, can be expected to file for bankruptcy in 2009 and possibly 2010. Consumers will continue to find it tougher to borrow for an auto loan or a mortgage. And the auto industry, and the U.S. economy, will be stuck in the mud.

"We're going to be struggling well into 2009," said Zandi, whose new book is called "Financial Shock: A 360-degree Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis."

This is not just any old financial blip. "This is unprecedented," Zandi said.

The subprime financial shock, he concludes, will go down as a tidal shift in economic history.

Unfortunately, I have a strong hunch that Zandi is right. His book offers a readable explanation for how roughly 15 million shaky or bad mortgage loans could turn into what's expected to be a trillion-dollar global financial fallout.

Zandi, who also serves as an economic adviser to Sen. John McCain's presidential campaign, predicts that the next big fallout from the credit crunch will involve debt owned by businesses. Corporate credit conditions, which generally are good now, are weakening quickly.

The most significant corporate credit problems right now, he said, are among retailers and vehicle manufacturers, reflecting the deepening slump in consumer spending and vehicle sales. Bankruptcies will broaden.

Zandi also said the nation's regulatory framework must be overhauled. And he said one regulator, probably the Federal Reserve, needs to have authority over mortgage lending laws.

Company executives and consumers alike must readjust. Higher-income and lower-income consumers will need to be savvier about saving money. The easy money, which frankly wasn't so easy after all, is gone.

Reach Susan Tompor at stompor@freepress.com.