Financial writer says history gives clues to future after credit crisis

By Andrea Heisinger

New York, Oct. 23 - The bank loan market could go back to conditions of more than 30 years ago as the credit crisis resolves, financial writer Peter L. Bernstein told Thursday's Loan Syndications and Trading Association conference.

Bernstein, who was the key note speaker of the annual conference in New York, showed on a graph that borrowing and debt were not a large part of the economy prior to 1978.

"The 1980s were a different world than we'd seen before," he said. "Borrowing made sense. Who wouldn't want to borrow at lower interest rates?"

Then he tried to explain the lead up to the current economic meltdown in one word.

"The only word is leverage," Bernstein said. "It's a big word, but it explains the whole thing."

He called the last 20 years "the Goldilocks environment" because of the lack of major economic setbacks and encouragement of high risk.

The current deleveraging of the private system has left a heavy load of government debt, Bernstein said, which has an ominous tone.

"When this is over, when we hit the bottom, people are going to be afraid of borrowing," he said.

When asked about the root of the current economic problems, Bernstein said he's not clear where it all came from.

"The household sector was starved for credit, and then they had it," he said. Then home prices increased around 1997, and the wide use of sub-prime mortgages likely originated with the belief that home prices could only go up.

"I looked at that and thought, hmm...that's nice," he said. "I didn't think it was going to take down the world."

Bernstein was asked about when the crisis would reach the bottom and whether consumer credit was another shoe waiting to drop.

He said consumer credit is a "very serious problem," and add that he is less worried about the corporate side.

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