Market Logic

There was no credit crunch

Posted in economics, macroeconomics by mktlogic on March 27, 2009

The economic crisis may have been the result of any number of factors, but the frequently cited “credit crunch” narrative doesn’t square with reality.  Bank credit never stopped growing.  The following graphs from the Fed give year-on-year percent changes in total loans and leases at commercial banks, total bank credit and total real estate loans.  Whatever the causes of the current crisis may have been, it’s hard to believe that declining availability of credit was among them.

loans

totalbankcredit

realestateloans

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One Response

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  1. On the Money said, on March 28, 2009 at 5:25 pm

    The credit crunch is linked to the property value slump. Irresponsible lending (mainly through outrageous credit scoring) meant prices went unrealistically high as vendors were persuaded they could ask for more … There came a point where wages could not stay apace with property prices and so buyers started to dry up. So a credit crunch was born out of bad credit scoring on top of increasingly “toxic” assets. But hey, I’m no economist: I was only a Legal Aid debt adviser for 12 years and a “home owner” …

    😎


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