Last week, as you may recall, I asked for data on the credit markets. We all know, I explained, that the price of credit has gone up sharply, but what do we know about the amounts of credit being purchased at the new, higher prices? Had the credit markets truly “frozen?” Or were they continuing to function fairly smoothly at the new, higher prices?
More than five dozen readers replied, giving me an education. At the worst moments of the crisis, broadly speaking, interbank lending did fall off sharply. But other forms of lending continued to take place at remarkably robust rates. Special thanks to the several readers who brought to my attention a study published earlier this month, “Facts and Myths about the Financial Crisis of 2008,” a working paper published by the Minneapolis Fed. An excerpt:
The ﬁnancial crisis has also been associated with four widely held claims about the nature of the crisis and the associated spillovers to the rest of the economy. The ﬁnancial press and policymakers have made the following four claims about the nature of the crisis.
1. Bank lending to nonﬁnancial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by nonﬁnancial corporations has declined sharply, and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.
Here we examine these claims using data from the Federal Reserve Board. Our argument that all four claims are false is based on data up until October 8, 2008.
Let me repeat that: Four of the central claims of the press and policymakers, repeated ad infinitum over the last couple of months, and used, very explicitly, to undermine free market political candidates, including John McCain — these claims, reputable economists believe, are false.
The paper comprises six pages of clear, accessible text followed by more than a dozen striking charts. Read it here.