Flawed Assumptions about the Credit Crisis: A Critical Examination of US Policymakers

[Revmitchell]

US policymakers have implemented an unprecedented range of tools to fight the credit crisis. However, it appears that many of their assumptions regarding the nature of the crisis are not supported, or even flatly contradicted, by the available data. Many measures of lending have actually increased during the crisis and are even at record levels.

This reports examines some key assumptions being made by leading US policymakers regarding the credit crisis. In particular, comments made by the two leading policymakers, the chairman of the Federal Reserve, Ben Bernanke, as well as the secretary of the US Treasury Department, Henry Paulson, are compared with publicly available data.

In many cases, it appears that these policymakers’ assumptions regarding the credit crisis are incorrect. Far from seeing a tightening of credit, a number of measures show that credit has expanded, and Celent finds that the lending markets are in surprisingly good health. Data published (in most cases by the Federal Reserve itself) show that:


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[billwald]

From the report:

>Overall lending by US banks is at a record high and has increased during the credit crisis.

How much is credit card borrowing?

>Interbank lending is at record highs and has increased during the credit crisis.

How does that help the home buyer?


>Consumer credit is at record highs and has increased during the credit crisis.

I'd say this is bad news. Stupid people buying toys on credit and old people trying to pay for meds . . . .

>Commercial paper markets are operating within their historical norms.
>Lending by banks to businesses is at record highs and has been growing rapidly.
>Municipal bond markets are operating within their historical norms.

Probably a good sign.

>Deposits at banks have shown a substantial increase since the start of the credit crisis.

People are keeping cash instead of investing because they don't trust the economy. In the same way, people are buying government paper at almost zero interest because they don't trust banks. Bottom line, working people don't trust the market so they buy muni bonds and put their money into banks. Rich people don't trust muni bonds or banks so they put their money into govt paper.