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The prescription for making expenses match revenue, and thus making lenders more willing to help the city pay its bills, was humbling, even belittling, in its cold logic.
But the system of checks and balances has been tightened, making lenders increasingly skittish.
This is called adverse selection: the most eager borrowers will be the least desirable, making lenders less willing to lend.
Activity is weakening, making lenders even warier about granting loans and borrowers reluctant to take on debt.
The report found this "further marginalises the Carmichael proposal" by making lenders less likely to provide the debt funding needed to see the project to fruition.
Kindleberger and Hyman Minsky showed how the cycle works; the greater availability of credit allows more people to buy assets, which rise in price, making lenders more confident and encouraging further credit growth.
Similar(51)
Rising amounts of bad debt make lenders more risk-averse.
Strong growth heightened competition and made lenders more confident, says William Ford of MIX.
Developments in the financial industry also made lenders more willing to extend risky credit.
That has made lenders reluctant to refinance loans for which they are not already responsible.
Such a rule would make lenders more conservative, which would generally be a good thing.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com