Tightening of credit strikes nerve among consumers

When Mark Ryan finally scraped together more than enough to buy a home, he found that the mortgage a bank promised him earlier in the year was no longer available.

In a land where TV blares no-money-down pitches and everything from homes to furniture to college education is bought with borrowed money, the crisis on Wall Street is causing the credit market to seize up. On Main Street, this means fewer loans and smaller loans at higher rates--when they are available at all.

No one is quite sure how bad it will get, especially with the fate of the proposed $700 billion government bailout unknown. But people's inability to borrow has potentially dire effects, since consumer spending accounts for two-thirds of U.S. economic activity.

"If not fixed fairly soon, we may find that individuals and smaller businesses have much higher costs for borrowing--or in the worst case are unable to borrow at all," said David Stowell, finance professor at Northwestern University's Kellogg School of Management.

Freitag, a 43-year-old freelance writer in Cincinnati, was surprised when she tried to get a credit card from home improvement chain Lowe's Cos. this month. She got the skimpy $1,000 credit line bumped up to $2,000 after she complained, but even that wasn't enough.

Freitag calculated that her purchases would add up to almost $9,000, including the $6,000 for her roof, which was damaged in a wind storm this month. Now she will have to take out a consumer loan, which has bad consequences: Merely searching for the loan could hurt her credit rating, and she will have to start paying it back right away.

"These are needs," said Freitag, whose husband recently lost his job in corporate video production. "I am not going out and buying a designer kitchen."

There was little improvement to be found Friday in the credit markets, where corporate borrowers go for loans, an indication that consumers may continue find it difficult to borrow money.

The overnight London Interbank Offered Rate--LIBOR--fell to 2.31 percent from 2.56 percent Thursday, a decline that may make it easier for banks to obtain very short-term loans. But the LIBOR tied to longer terms dipped only negligibly suggesting banks were less willing to loan each other money for longer periods of time.