Contra Tyler (see below) neither the post from Free Exchange nor Mark Thoma’s comments "rebutting" the Minn. Fed study, Four Myths About the Financial Crisis of 2008, are compelling or well thought out. The Minn. Fed. presented data demonstrating that four widely reported claims about the credit
crisis panic are myths – do either of the cited links claim that any of these myths are in fact true? No. Do either of the cited links present any data at all on the quantity of credit? No. Many people cite prices/rates/spreads as evidence for the crisis but what we ultimately care about is quantity not price. The Fed. piece had lots of data on the quantity of credit. Where is the rebuttal? Does Tyler cite any data at all or lay out his counter-claims? No.
Consider the major item that these links suggest as evidence of the crisis. Amazingly, it’s "an unusual spike in bank lending during the
crisis period." That’s right, an increase in bank lending is evidence of the crisis. The argument is that lack of credit elsewhere means that firms are drawing on their line of credit at banks. One problem with this is that Paul Krugman made this argument way back in February when I said that the lack of credit was being overblown. Thus the "crisis period" keeps changing. In February, the crisis was in February, now Thoma is saying it’s just the last few weeks. More fundamentally, the whole point of a line of credit is to keep credit flowing when one source dries up. A commentator at Thoma’s site nails this one:
Saying that credit availability is so ‘severely’ endangered that
borrowers are forced to utilize credit from banks isn’t the most
persuasive argument. What next?
"Gasoline supplies had withered to the point that I was forced to fill up at Texaco instead of Chevron!"
Finally, Tyler and both of the cited pieces attack a stupid claim that obviously neither I nor the Minn. Fed. piece made, namely that the interventions by the Fed. have had no effect. Obviously, they have. But the story the media and the commentariat are reporting is that there is a credit crunch, credit is frozen, firms are starved for credit, we are on the verge of a Great Depression etc. The story has not been, ‘despite some problems in the banking sector quick action by the Federal Reserve and plenty of alternative non-bank credit has insured that credit continues to flow to nonfinancial firms.’