Minnesota Economists Debunk Myths About the Financial Crisis

The alarm bells sounded back in September and October of this year concerning the supposed 'freeze-up' of the financial system, rung by US Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and others, had some significant results. For one thing, they handed the white house to the Democrats and enabled them to increase their majorities in congress. They also spread news about an 'imminent' recession across the country, causing people to cut back on consumer spending.

Now we learn from three economists at the Federal Reserve Bank of Minneapolis that three of the main claims made by Paulson are false. You can see a copy of the paper written by Chari, Christiano, and Kehoe here.

The three falsehoods include:


1. Bank lending to nonfinancial corporations and individuals has declined sharply.

There is no evidence of any decrease at all.


2. Interbank lending is essentially nonexistent.

There was no decrease in the aggregate amount of interbank loans.

3. Commercial paper issuance by nonfinancial corporations has declined sharply, and rates have risen to unprecedented levels.

There was no decrease in the levels of commercial paper issuance by nonfinancial corporations, nor did the interest rates change at all.

This is typical of the kind of nonsense that comes out of Washington. Bush was a fool to appoint the Keynesian Bernanke to be Federal Reserve Board Chairman. And he needs someone to be secretary of the Treasury who can look at the issues in a calm and dispassionate manner. Not someone like Paulson who has made hundreds of millions on Wall Street in recent years.