Three economists for the Minneapolis Fed have written a paper called “Myths about the Financial Crisis of 2008.” The myths they refute: 1) Bank lending to nonfinancial corporations and individuals has declined sharply, 2) Interbank lending is essentially nonexistent, 3) Commercial paper issuance by nonfnancial corporations has declined sharply and rates have risen to unprecedented levels, and 4) Banks play a large role in channeling funds from savers to borrowers. They argue that all four claims are completely false, and cite an overwhelming amount of data showing this.
In response to Alex Tabarrok’s posting of this paper, one commentator compares the credit-crunch claims to the fears of WMD in Iraq.
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Hey Jeff,
I think you’d like this article about the Broken Window Fallacy from the September 2008 MPLS Fed Gazette:
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4028
I was extremely pleased when I saw this in my copy of this typically mainstream publication. I was, unsurprisingly, disappointed with the ending… where he plugs the “regional impact multiplier” nonsense.
Whoa, this paper is important! I haven’t seen such a overwhelming evidence against everything they do up there on the Capitol Hill. And from no less than Fed itself! This should be in the blogosphere asap.
I agree with Karlos. FWIW, I intend to blog about this paper soon. Go thou and do likewise!
Is it not ironic that the paper is “Working Paper 666″ ?
Pleased to meet you
Hope you guess my name, oh yeah
Ah, what’s puzzling you
Is the nature of my game, oh yeah….
Ironically, the paper you posted is working paper number 666.
What would be the motive of the FED for insisting in such a huge bailout, if some of its own members are already suggesting the banks are in much better shape than previously thought?
Is third-world style corruption making its triumphant entry into a system that used to teach moral lessons to others during centuries?
I think we may fairly say that the US banking industry was hijacked by its regulators. They’ve been waiting for quite some time, and obviously, it was they who set the trap.
Now we’re (all) in for it.
From this set of data one can’t help but wonder what’s going on (under the table) between secretary Paulson and his old buddies at Goldman Sach et al. I always thought crony capitalism is the exclusive ethos of East Asian states.
I can’t download it…
What really is a credit crunch?
A credit crunch (also known as a credit squeeze or credit crisis) is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates. In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e. credit rationing occurs).
We are currently facing a severe one globally.
Over the past couple of years, the term “credit crunch” has taken its place in the popular vernacular alongside other now-common phrases like “mortgage meltdown” and “bank bailout.”
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