Banks continue to lend to businesses, despite anecdotes to the contrary. Loan data rebut tales of "frozen" lending.
The president hectors bankers to lend. The secretary of the Treasury complains that banks are hoarding cash. The Federal Reserve chairman sounds alarms about reanimating banks in gridlock.
The nation indeed may be facing a financial crisis, with large institutions failing in the wake of multibillion debts, but most bank-lending to business customers actually has been on the rise.
"The story goes that they [banks] are holding on to the money or putting it into Treasury bills," said Lawrence Christiano, a Northwestern University economist and consultant to the Federal Reserve Bank of Minneapolis. "That seems to fly directly into the face of the evidence that's out there."
The latest government numbers, through mid-October, show bank commercial and industrial loans up, bank commercial real estate loans rising and interbank loans climbing. Indeed, from September 2007 to mid-October of this year, the numbers in all three categories have climbed consistently.
It's a puzzle that's getting little attention, even as hundreds of billions of taxpayer dollars are devoted to fixing a problem that seems belied by government figures.
"Their own data seems to contradict their position," said V.V. Chari. "It would be valuable for them to explain what they're talking about."
The $700 billion taxpayer bailout of large players in the financial system reminds Chari of the buildup to the Iraq war.
"The analogies with the war in Iraq are more than disturbing," Chari said. "We're again hearing things like: 'We know things you don't know. Trust us.'"
Federal Reserve Board and Treasury representatives declined to comment on the discrepancies between the rising lending reflected by government statistics and statements about the fragility of the banking sector made by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson.
Source:http://www.startribune.com/business