Is there a credit crunch?

Here is a good piece rebutting the Minneapolis Fed study.  One point made is this:

…there is the inconvenient matter that the Federal Reserve and
the Treasury went out and did all that stuff they did in order to prevent a
massive breakdown in lending to the real economy. … Now this does
allow sceptics to say, "Well, how do we know things would have collapsed"? We
don’t, of course, but that doesn’t change the fact that current lending takes
into account massive government intervention to make sure that lending
continued. The latter therefore can’t be used to argue that the former wasn’t

On these questions I am more of a pessimist than is Alex.


Yes the Fed did some stuff and that stuff was working to keep rates to good creditors reasonable.

But since the other things were working why did we need a giant bailout?

The bailout seems to me less driven by trying to avoid a terrible financial failure and more to avoid a recession and get lending "Back to normal".

The problem is that normal was at ridiculously loose credit standards. Spreads have been rising, but they SHOULD be rising. Some institutions/people don't deserve the credit they were given.

If a portion of our economic growth over the last 3-5 years was driven by this loose credit then we are going to have to give some of the growth that was created by building worthless houses back.

Have you seen an English version of Samuelson's editorial "The seven errors of liberalism without rules."

We have direct data on credit conditions. The Fed's Senior Bank Loan Officer survey, taken every quarter, asks if banks are tightening or easing lending standards. The net percentage of those who say they are tightening lending standards has soared in the past year, is close to record highs, and are near levels commonly associated with prior credit crunches and recessions.

If banks say they are tightening lending standards, why don't you want to believe them?

The National Federation of Independent Businesses conducts a monthly survey of its members, which are small businesses. The net percentage who say credit is harder to get has soared in the past 18 months to the highest since the 1990-91 recession. Why not believe them?

I think we need to separate two things.

1) Is credit tighter than it was when you could buy a house with zero down and no proof of income.

2) Is credit so tight that it is threatening to throw us into another great depression and we must take huge steps (700 Bn bailout) to stop it.

The answer to 1 is obviously yes.

IMO the answer to 2 is obviosly no.

The rates that good borrowers could get just never got to crazy levels. The spreads may have, but the Fed has been keeping rates low so the total cost of borrowing did not go up too much.

Tyler.... you're such a crisis snob.

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