Chris Anselmo from Thomson Finacial's Corporate Advisory Services group discusses subprime.Transcript:I'm Chris Anselmo, bringing you Thomson Financial's "Making Sense of Subprime.Part 2"Back in 2007, many thought the supbrime crisis would be contained. Popular thought was that the sub prime issue was not a crisis but a mere bump in the economic road as the problems would only affect the financial and housing sectors. Unfortunately many were wrong and the subprime crisis has infected the economy.Two thirds of the entire US economy is aimed at end consumers and subprime problems have lessened the consumer's buying power which weakens the economy. Before the loan standard pendulum swung, loaning standards were lenient and people could take on more debt to keep up their current spending patterns. Now those loaning standards have tightened as loan issuers are limiting funds while raising late fees and other charges. This makes it difficult for consumers to increase their debt, because banks aren't allowing them to take on additional housing debt or raise their credit card limits to finance purchases. For example American revolving debt only grew 2% in December after growing 13% and 11% in November and October respectively. This lack of spending caused December retail sales to drop 0.4% which was the first decline in sales in six months. This spending slowdown caused companies to miss their expected quarterly financial performance and stock prices to fall. Product sales are one of several ways a corporation can raise cash. Other avenues include issuing bonds, selling equity, selling assets, issuing paper, cutting costs or borrowing money straight from the bank. Companies are reluctant to issues bonds or short term debt because investors currently aren't buying commercial paper which is an unsecured, short-term debt instrument issued by a corporation. There are transparency issues related to all debt because no one knows how deep subprime has infiltrated the economy, specifically the corporate balance sheet. Companies are not issuing stock for several reasons, namely because it signals to investors that the company feels the stock price has risen to a peak and it will dilute the earnings per share. Not to mention many investors are reluctant to enter the stock market and most stocks are trading at a discount compared to several months ago. Borrowing from the bank is also problematic. Banks have risen their lending standards with corporations and are not issuing debt like they used too because they can't sell it. The value of low rated corporate loans have tumbled!!! Standard & Poor's said its index of the prices on high-risk corporate loans fell to a record low of 86.28 cents on the dollar. This leaves companies with few options to raise capital to generate revenue. With limited profitability options, companies have slashed jobs and divested business segments as means to combat the negative effect of subprime on bottom line earnings. The initial jobless claims has risen over 5% since July 2007. This all weakens the economy and compounds the subprime problems. That's all for now, but for more, stay tuned for the next installment of our series "Making sense of Subprime."