Standard & Poor's View on the Current Economic Climate

Standard & Poor's financial analysts released a statement on Friday concerning the recent volatility in the stock market and economic climate of the United States in the wake of the housing bust and the terrible wave of credit defaults.

S&P points out that some investors and analysts are concerned that the housing market's boom gone bust and the subsequent and precipitous fall in housing prices, which is now the worst such drop since the Great Depression, are concerned that the problem with the housing sector of the economy will spill over into other sectors, triggering a true market recession and perhaps a minor depression. The U.S. stock market has been on a record-setting bull cycle since early in the 21st century and all three major indices set new records for closing highs in 2007. Additionally, 2007 has seen a record pace of mergers and acquisitions activity, which always motivates investors to sink more money into the stock market.

However, the days of the Great Depression did not take place in the powerful and intertwined global market of the 21st century, notes S&P.

"The prevalence of mark-to-market accounting, credit-default swaps, and other tools of modern finance allows risk to be repriced quickly as conditions change. But paradoxically, this rapid repricing also tends to aggravate short-term instability," said Standard & Poor's Managing Director Mark Bachmann.

The housing bubble, as it was known to some analysts when it began expanding in fullness in 2001, was funded by a lot of risky lending practices. Banks were very eager to get people into homes, and new mortgage investment products made mortgage securities buyers on Wall Street increasingly daring. Investors began demanding that banks consider giving loans to more and more people of "sub-prime" credit ratings.