E-MAIL THIS LINK
To: 

4 Myths of the Current Credit Crunch
From the Star Tribune:
Chari, Christiano and University of Minnesota economist Patrick Kehoe, in a working paper published in October, note that bank deposits actually have climbed even as commercial-paper borrowing fell precipitously in recent weeks.

"One possibility is that banks are reducing their borrowings from the commercial-paper market and substituting deposits for these borrowings," the authors wrote. "If so, it's difficult to see why this substitution should create major problems for either the financial sector or the rest of the economy."

Four claims about the nature of the nation's financial crisis appear to be myths, they concluded.

Their findings:

  • Bank lending to corporate America and individuals has not declined.

  • Lending between banks has not dried up.

  • Commercial paper (short-term borrowing by nonfinancial companies) has fallen, but not seized up as a source of commercial lending. (Indeed, commercial-paper levels last week started to head back up for the first time since the failure of Lehman Brothers, in mid-September.)

  • Banks do not, as popularly believed, play a large role in channeling money from savers to borrowers.
    So all these stories about Great Depression II are a little premature.
    Posted by: Frozen Al 2008-11-03
    		•
    http://www.rantburg.com/poparticle.php?ID=254304