What Credit Crunch?
| Peter Klein |
I’ve talked before about the wild claims about credit markets being “frozen,” sound investment projects that can’t be funded, worthy borrowers who can’t get loans, and all the rest, claims that are totally unsupported by theory or empirical evidence. Nobody, least of all Paulson and Bernanke (or their ostensibly free-market supporters, such as Mankiw and Cowen), has bothered to provide any data to support these claims. A new paper by three Minneapolis Fed economists, “Four Myths About the Financial Crisis of 2008,” shows that the wild claims are virtually all false. The data show, for example, that despite a rise in inter-bank lending rates, actual lending between banks is about the same as before, and lending between banks and firms and individuals has risen, not fallen, during the crisis. (Loan volume is a better indicator than interest rates, which reflect default risk.) This analysis is based on publicly available data, the same sources I pointed to before. Why is nobody paying attention? (Thanks to Mike Moffatt for the link.)
Update: At least one Marginal Revolution blogger gets it.
Update 2: Bob Murphy writes (October 30):
I think the authors did a really bad job of it. Some other economists ridiculed it, and I think their criticism is valid. In particular, the Minn Fed paper shows charts that could just as well have come from Paulson showing why his interventions saved the day.
For example, see this at the Economist.com blog: http://www.economist.com/blogs/freeexchange/2008/10/analysis.cfm . . . .
So the problem is that the Minn. Fed authors didn’t do a very good job in picking their charts, I think. If you instead do year/year ones, then things look a lot better for the “there’s no crisis” argument: http://economistsview.typepad.com/economistsview/2008/10/four-myths.html
Even though Mark Thoma (in the link above) doesn’t agree, I think if you look at the charts in his post, you’ll see some pretty amazing things. For example, even *real estate loans* have had yr/yr growth rates in excess of 5% this whole time. I.e. the “credit crunch” just meant a slowdown in their rate of growth.