The argument in support of Treasury Secretary Henry Paulson’s $700 billion Troubled Assets Relief Program (TARP), that qualified borrowers no longer have access to credit, has been discredited by recent reports from the likes of The Federal Reserve Bank of Minneapolis. The report found that inter-bank loans, loans to consumers, and loans to non-financial firms from September through November have been at an all-time high. Meanwhile, Americans have lost $6 trillion in housing wealth and $8 trillion in stock equity. As consumer spending decreases, companies and individuals are seeking fewer loans. Joshua Holland of Alternet wonders how much of the effort to portray the crisis as a credit crunch was intentional: “this is the administration that used the threat of thousands of al-Qaeda sleeper cells in the United States to sell Congress on the Patriot Act….

“If lending to qualified parties has truly frozen,…’recapitalizing’ banks in various ways, buying up some of their crappy paper and guaranteeing some of their transactions—is fundamentally sound. If, on the other hand, the primary problem is that people are broke and maxed out on debt, and firms aren’t looking for money to expand, then the kind of massive stimulus package being considered by the Obama transition team and congressional Dems—largely designed to stimulate demand from the bottom up, with public works projects, tax cuts for working families, aid to tapped-out state and municipal governments and new money for unemployment and food stamps—is obviously the best approach to take.”

 

Was the “Credit Crunch” a Myth Used to Sell a Trillion-Dollar Scam? (by Joshua Holland, Alternet)

Looking Behind the Aggregates: A Reply to “Facts and Myths About the Financial Crisis of 2008” (PDF) (by Ethan Cohen-Cole, Burcu Duygan-Bump, Jose Fillat, and Judit Montoriol-Garriga, Federal Reserve Bank of Boston)

Facts and Myths About the Financial Crisis of 2008 (by V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe, Federal Reserve Bank of Minneapolis) (PDF)