Self-fulfilling prophecies

During the credit bubble, investors comforted themselves with the fact that so few companies were going bust. The extremely narrow credit spreads were therefore entirely logical - or, at least, that’s how the thinking went. Now the credit squeeze is going to result in default rates going up. Moody’s, for example, is predicting a near four-fold increase among speculative-grade companies from last year’s record low of 1.4%. That, in turn, may seemingly validate the current tighte...