In a full Wall Street Journal opinion column, Meredith Whitney warns that the credit crunch still has a ways to go.
We’re entering the second stage, whereby credit lines for small business will be increasingly cut.
Small business loan credit lines have already been cut by 25% this year, and this trend will only continue. She expects another $1.5 trillion in credit to be cut by the end of 2010, after having already seen $1.25 trillion cut during the last two years.
This will starve struggling small businesses, which represent 50% of employment and 38% of GDP, of the capital they need to survive.
To make things worse, more restrictive regulations won’t help either.
WSJ: The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.
Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences. Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit.
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