Credit Crunch May Worsen Fast

The worst of the credit crunch may not be over, bankers and analysts warn. Low-rated corporate loans have recently been plunging in value, which could lead to banks rushing to dump the loans at low prices, reports the Wall Street Journal. As a result, investors may back off securities backed by loans, bonds, and even commercial real estate.

"You've had the biggest credit bubble—probably the biggest credit bubble we have ever had," says a strategist, and part of the damage is done, but "nobody quite knows where that ends." In particular trouble are loans to big US companies with low credit ratings. Those leveraged loans had been used to finance the spate of private-equity buyouts last year. (More credit crisis stories.)