A few weeks ago, three economists at the Federal Reserve Bank of Minneapolis set off a debate among Internet-addicted economists by claiming that, in essence, lending to the real economy was just fine and anyone who said there was a credit crisis was wrong. (See my initial reaction, as well as links to the original paper and several perspectives.) Now we have been treated by four economists at the Federal Reserve Bank of Boston, who argue that there was, in fact, a credit crisis. In particular, they say:
- “the aggregate figures in [the original paper] do not reveal the weakening in new lending”
- lumping together AA and A2/P2 commercial paper hides the problems for A2/P2 issuers
- lumping together all durations hides the fact that commercial paper shifted from longer durations to shorter durations
- even though most corporate lending is via bonds, not direct bank lending, households and small businesses rely heavily on banks
and similar points. Take a look; some of the charts are fascinating.