Working Paper #666

Recently, in one of the current economic crisis disccusions, I saw a link to a Working Paper #666 from the Federal Reserve Bank of Minneapolis. At first I thought it’s a prank. Well, the number alone sounds like some dark humor. Nope. It was not. I went through the link, yeah, really, the site truly belongs to one of the FRS members. For reference, “FRS member” is not any FDIC insured bank, it’s one of the very few banks which _ARE_ FRS. And, yes, before this working paper, there are working papers 662, 663, 664, and 665. I guess, just a coincidence. And the actual paper refers to the actual FRS site and their official published data at I checked, yes, it looks like data there really confirm what the paper says…

To be fair, the paper does not argue that US has a financial crisis or likely to get a recession soon. However, it doubts a few statements that were used widely since the crisis was acknowledged. Specifically:

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

  2. Interbank lending is essentially nonexistent.

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

  4. Banks play a large role in channeling funds from savers to borrowers. 

And once you check the data (again, from the Federal Reserve System site) it really looks like all these statements are false. Credits even increased a bit, interbank credit is about on the same level, commercial papers by nonfinancial corporations are issued as usual at the same rate, in fact, even commercial paper by financial institutions albeit diminished and now at a higher rate, still not reached the rate of 2006. And, most of nonfinancial corporations debt (~80%) are commercial papers bought directly by savers, not banks. Oops…

Wait a minute… Aren’t those the same statements that were trumpeting the Doom and forced Senate and Congress to get American taxpayers into $700 bln debt despite tons of calls, letters and faxes of voters demanding not to do so?

What is this? Secretary of Treasure being clueless? Who is lying? Or did we got another PR campaign like in 2001? “Wag the Dog“?

I specially like the conclusion of the report:

Our analysis is based on publicly available data. Policymakers have access to other sources of data as well. Policymakers could well believe that bold action is necessary based on data that are different from that considered here. If so, responsible policymaking requires that they share both the data and the analysis that underlies the need for bold policy with the public.

Free-form translated from my Russian blog

P.S. Added August 6th, 09: Interestingly enough this post was hacked and defaced. I guess, here is one more question “Why?”

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