A credit crunch occurs when there is either a lack of available in the credit market or lending institutions such as banks, thrifts and credit unions are reluctant to extend credit. At the present time, lending institutions have suffered losses from previous loans, and they are generally unwilling to take significant additional risks or are incapable of measurable amounts of lending while they shore up their capital position. In our current predicament, the biggest underlying cause is borrowers defaulting on existing loans and the properties underlying a defaulted loan are declining in value.

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