NEW YORK — The credit markets finally got a bailout bill, but the stranglehold hasn’t let up — a troubling sign that lenders and investors think the package will be only a baby step in the long road to economic recovery.
The credit markets, where companies go to get cash loans, have seized up since the bankruptcy of Lehman Brothers Holdings Inc. and in anticipation of the $700 billion plan initially voted down by the House. The House passed a revised version of it Friday after the Senate’s approval earlier last week, but anxiety about its effectiveness kept demand for Treasury bills high and nearly nonexistent for other types of debt.
Overall, market participants have begun regarding the rescue plan as a medicine for what is ailing the financial system, but not a cure-all.
“At best, we can hope that it stems some of the more intense risk from the credit crisis. It prevents things from spiraling out of hand here,” said JPMorgan Chase economist Michael Feroli.
Some are worried, though, that the plan will not work at all.
“Nobody knows how it’s going to succeed,” said Howard Simons, strategist with Bianco Research in Chicago. “It seems the American public had better sense than Wall Street and Washington — the American public said, ‘Don’t throw good money after bad.’ ”
The Treasury will buy banks’ risky mortgage-backed assets in an effort to alleviate investors’ worries about the institutions’ solvency and free them up to do more lending. Even if those efforts succeed, the effects will be far from instantaneous, and borrowing could remain very expensive for some time.
With the economy in such a weak state, lending to consumers and businesses will still appear risky until certain factors, particularly employment and the housing market, improve.
It also could get even harder for certain individuals to get home loans. Banks have gotten more stringent in their mortgage underwriting, and Wisconsin’s affordable-housing agency recently suspended making loans for single-family homes because it was unable to sell tax-exempt mortgage revenue bonds and raise capital.
It’s not that financing has completely dried up. For example, Toyota Motor Corp. offered zero-percent financing on nearly a dozen models to lure customers, who’ve been having a harder and harder time finding car loans.
