Yesterday, a study out of the Minnesota Fed attempted to debunk the credit crisis myth. Its basic argument: The data just doesn’t show it. And indeed, based on Fed data, there’s not much out there showing a true credit freeze. Since then, a number of folks have weighed in, including Felix Salmon, who suspects that traditional borrowing has been replaced by credit line drawdowns, and alternative forms.
Alex Tabarrok weighs in today:
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.
There are a few problems with all of this. First of all, some of the conclusions drawn are simply false. While rates on the highest quality non-financial commercial paper have behaved fairly well in recent weeks, rates for lower quality stuff have soared. The spread between the two, actually, is one of Calculated Risk’s credit market indicators.
The failure to distinguish between the two types of paper is indicative of the broader, unwarranted credulity of the authors. For instance, many of the series they present actually show an unusual spike in bank lending during the crisis period. Are we to understand that for most banks, conditions actually improved, suddenly, sharply, and atypically while the rest of the financial world went to hell? Well, we might do that. Or we might suspect that the increase in bank lending was itself a product of tight credit conditions elsewhere—that borrowers were falling back onto lines of credit they normally wouldn’t use thanks to the severity of lending conditions.