The Financial Crisis
Excellent summary from the Minneapolis Fed here.
Peter Robinson:
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.Nouriel Roubini says the worst is still to come. UPDATE: More from Peter Robinson.
But I do believe, to quote the first reader, that “the burden of proof is on the Treasury and the Fed…to convince us.” Why? Because a tiny handful of men has been making decisions for the entire nation. In the first days of the crisis, this is was acceptable—and probably unavoidable. But to sustain their efforts, Paulson and Bernanke will need to carry the nation with them. They’ll need to “convince us.” And note that all three of my correspondents—each of whom, obviously, is financially sophisticated—lacked reliable, public information with which to make his case. No doubt Treasury and the Fed possess a certain amount of data that must remain private. But the rest of the data? Surely they should make it public just as promptly as they possibly can.Indeed. The timing of all this is still curious to me. UPDATE II: More from Professor Bainbridge.