Exactly. You have hundreds of billions of dollars worth of ABCP now sitting on sponsor bank balance sheets – obviously that shows up in “total credit”, but it’s hardly an indicator that banks are actively lending, let alone that the overal financial system is. Quite the opposite.

The one that really made me question what they were doing was the insistence that the 90 day CP rate didn’t show any sign of a crunch. Based on absolute rates. Never mind the A2/AA spread, they didn’t even mention the spread over Libor or the target rate. So if the Fed slashes interest rates, that’s a sign that the market is healthy, according to the authors.

Here’s my question: If, over the last 10 years we’ve adjusted our behavior to unsustainable levels of credit does a return to “normalcy” qualify as a crisis or simply a painful but recoverable recession?

Businesses borrowed to undertake risky projects/expansion, the FS industry over-leveraged, and private citizens over-borrowed, instead of saved, to buy cars and houses because credit was so cheap and easy. If wall street, and even people like your contractor benefited from our largess, why should government step in to protect them from the fall?

I’m not unsympathetic. It is unfortunate for many people. But that doesn’t make it a crisis.

Sometimes I’m not sure what the Fed is trying to accomplish with their communications. When the fire alarm goes off in a crowded building but no one sees smoke, it’s very effective for the authorities to tell people not to panic and to make their way to the exits in an orderly fashion. On the other hand, attempt the same approach while people are surrounded by flames and, in fact, some are on fire (e.g., AIG, LEH) and you lose all confidence in their ability to manage the crisis.

I’m not sure how many innings we are into this financial crisis but there are too many stories that we all know of that tell us that the credit crunch is not simply a figment of the media’s imagination. If the credit crunch were a “myth”, how is it that my friend was laid off due to her small company’s inability to extend a line of credit through her bank? Sure, this story is irrational but I didn’t have these stories last year.

I would have loved to have been in that discussion that Simon had at MIT. I certainly feel like we all have only partial pictures of the impact of the financial crisis.

At best, I hope that the Minneapolis Fed is just trying to limit the panic of consumers and investors. At worst, I’m afraid that they just don’t “get it”. I’m shocked that in this totally deflationary environment – (TIPS spreads are projecting less than 0.2% annual inflation for the next 5 years in spite of the flood of dollars into the market) – that the ECB and the Fed have no cut interest rates further. Actually, the ECB’s lack of action is particularly shocking as they have a lot further to go.

1. The paper by the Minneapolis Fed doesn’t offer conclusions, but these four myths may not be the cause but the symptoms of another financial factor. These four things may not be the causes but certainly something is going on in the financial markets.

2. Banks are slow to lend. After being pre-approved/pre-qualified for a home loan it took a total of 9 weeks to go through under writing. Of my three credit scores, the lowest was 790. I was buying a home with 10%, I can’t imagine if I was a small business owner trying to convince the bank to loan on the strength of a business plan.

3. I wouldn’t blame the media I would blame the administration for not going about this more methodically and injecting so much fear into the market and the world. I believe a lot of instability came from the Administration asking for a bailout. In the weeks leading up to it, there was some instability in the market but it didn’t seem as cataclysmic until Hank Paulson went to Congress and convinced them there was a crisis. The Administration either saved us from complete financial Armageddon or caused a serious panic in credit markets. I don’t believe we’ll ever know which.