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Home Front Economy
4 Myths of the Current Credit Crunch
2008-11-03
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

    #8  WORLD MILITARY FORUM > US, WORLD SUFFERS FEW LOSSES IN KEY ECONOMIC INDUSTRIES DESPITE FINANCIAL CRISIS; + US BANKING CRISIS IS A [covert] POLITICAL BLACK SHROUD/CURTAIN FOR US GLOBAL IMPERIALISM; + MELAMINE: PEOPLE OF THE US, EUROPE BEING DEFRAUDED BY THEIR OWN GOVTS, NOT BY CHINA.
    Posted by: JosephMendiola   2008-11-03 22:25  

    #7   It does no good to point out myths and fail to give an explanation, nor even a description, for current events.
    James (son of John) Kenneth Galbraith was interviewed in the Friday NYT about all the economists who failed to predict the current crisis:
    "ItÂ’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless."
    Posted by: Anguper Hupomosing9418   2008-11-03 20:35  

    #6  So why the 700 billion bailout?

    Why have a few Primary Dealers effectively gone bust?

    Why are interest rates so low?

    Why did US debt increase by 500 billion in one month?
    Posted by: Bright Pebbles   2008-11-03 18:07  

    #5  or a sham created by the democrates to change the direction of the election from character to economics.
    Posted by: bman   2008-11-03 17:09  

    #4  THEN WHAT THE HELL IS THE PROBLEM?????????

    This makes no sense at all. If they are correct, then what caused the severity of the problem in the first place.

    Would I be paranoid in thinking that this was a huge hyperbolic Sham-Wow set up to get $700B for bonuses and political news?
    Posted by: AlanC   2008-11-03 16:11  

    #3  Well, yes, I've noticed its horrible effects. We've only gotten one preapproved credit card application and one balance transfer offer today.
    Posted by: Cornsilk Blondie   2008-11-03 15:21  

    #2  I've noticed the world hadn't gone all black and white on us yet.
    Posted by: .5MT   2008-11-03 14:06  

    #1  I applied for and was accepted for 3 new credit accounts last month. I don't need them. I'm not going to use them. Getting them was easy. Easier than I thought, given all the doom and gloom reporting.

    Not that I am terribly surprised by this.
    Posted by: Minister of funny walks   2008-11-03 13:50  

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