"People are beginning to see some opportunities, but they have to be strong borrowers," said John Walsh, the president of Total Mortgage Services in Milford, Conn.
Mr. Duncan said that loans to strong borrowers in fixed-rate mortgages continued to perform well even as subprime and adjustable-rate loans slid.
With no strong borrowers to lend to, the banks find it even harder to earn profits with which to write off their bad loans.To some extent, therefore, Japan's economy is trapped, as the symptoms of its long slide have become self-reinforcing.
To create bonds, they must pool together several commercial loans, but with so few strong borrowers, "their only choice is to leave the primary markets and look to the secondary and even tertiary markets to fill up these loan pools," said Lawrence J. Longua, a clinical associate professor at the Schack Institute of Real Estate at New York University.
Effects are most significant for the strongest borrower.
Gary Gensler, the Treasury official who oversaw government debt markets during the Clinton administration, said he still thought "there will be a viable Treasury market throughout all this period because the United States government will be a safer, yet smaller and stronger borrower".
The AAA-rated GE Capital is, of course, a stronger borrower than New York, but an AAA rating cuts two ways.
One last thing: The suggestion that stronger borrower relief is worse for taxpayers is short-sighted at best, dishonest at worst.
Stronger banks will attract more deposits and will have the pick of the strongest borrowers at favourable terms.
