The Problem with Global Economics - Now Everyone is Hurting

The experts used to say that financial innovation and the globalization of finance were unequivocally good things because they prevented too much risk from being concentrated in too few hands

What they didn't allow for was the fact that spreading risk far and wide would ensure that major shocks to the system would quickly reverberate throughout the global financial system, causing incalculable damage.

Many of those same experts also used to say that bigger was better and that efficiency could best be achieved by disintermediation and a reliance on market-based mechanisms.

Again, what they failed to take into account was the fact that if market conditions were less than ideal, those firms that took these ideas fully to heart would turn out to be especially vulnerable.

Indeed, as the Financial Times reports in "Credit Squeeze Hits Larger Companies Hardest," many of the firms that were supposedly better able to weather economic storms are taking on a lot of water.

Large companies in Europe and the US are having the terms of their credit facilities tightened more quickly and more severely than smaller companies – in contradiction of received wisdom.

Surveys by the European Central Bank, US Federal Reserve and Germany’s Ifo economics institute all show banks tightening their lending criteria most for the largest companies.

Possible reasons put forward for this shift in attitude include smaller companies enjoying a better relationship with their banks, and financial institutions shying away from making large loans and preferring to deal with local groups, rather than multinationals.