While often attempted history proves that one cannot repeal the business and credit cycle. The cycle always seems to be the same although the triggers and environment may be different. Losses peak, loan demand and supply dry up, the appetite for risk evaporates while households and businesses begin the process of repairing their respective balance sheets. Slowly investors start stretching for yield and lenders (banks, shadow banks and capital markets) begin to ease credit terms, soon followed by increased usage of leverage. A review of the Federal Reserve Senior Credit Officer Survey bears out this cycle.
This cyclical nature of credit and default risk can clearly be seen from the history of the Kamakura Troubled Company Index going back to its introduction in 1990.