Joseph Schumpeter's works serve as reference point for virtually all contemporary accounts of capitalism as engine for economic growth. However, when calling upon Schumpeter the majority of authors refer solely to his notions on entrepreneurship and creative destruction whereas his observations on the role of credit in processes of economic development are very often left aside. Hence, the present paper aims to recapitulate Schumpeter's theories on credit and development. In light of the current economic downturn since 2007/2008 the main focus shall rest on Schumpeter's observations concerning the instability of economic growth financed on credit. The paper will thus test in how far Schumpeter's credit theories serve as guide for the analysis of recent economic events. By returning to the beginnings of dynamic interpretations of capitalism, the author wants to lay bare some fundamental dynamics of credit and growth that may provide insight into the basic economic mechanisms behind the recent crisis. In order to achieve these goals the paper will proceed as follows: In a first part, the paper will revisit Schumpeter's theories on creative destruction, credit, and economic development, and thus lay the basis for the analysis in the subsequent chapters. In a second part the paper will analytically test Schumpeter's theories on credit and development by adjusting a model of credit rationing and peer review as it has been developed by Joseph Stiglitz. In a third part, the paper will test the assertions of the two preceding chapters in form of empirical observations thus referring to the Gramm-Leach-Bliley-Act and the process of asset securitization as phenomena that have boosted the issuance of credit thus having instabilized the whole economy. The paper concludes by referring to potential remedies. Along with Schumpeter who underlines normative elements within processes of credit financing the paper concludes that regulators alone cannot revoke and ensure stability. Rather, it is also up to the management of financial intermediaries to regain trust into the system by displaying prudent and responsible behavior.