On Jan 1, 2009, at 2:16 PM, C. G. Estabrook wrote:
> Nice to have that cleared up. Now -- what to do with all that pesky
> evidence?
>
> [E.g.,] the media, [Dean Baker] argues, "are blaming the economic
> collapse on a 'credit crunch' instead of the more obvious problem
> that consumers just lost $6 trillion of housing wealth and another
> $8 trillion of stock wealth" ... He points out that even though
> mortgage rates have plummeted, the number of applications for new
> loans has dropped to very low levels and argues it's "the most
> glaring refutation of the claim that people are unable to get
> credit." If creditworthy applicants were being denied loans by banks
> unable or unwilling to lend, Baker explains, "then the ratio of
> mortgage applications to home sales should be soaring" as qualified
> homebuyers apply to multiple banks for a loan. "Since there is no
> notable increase in this ratio, access to credit is obviously not an
> issue"...
The loss of "wealth" - a stock - doesn't matter anywhere near as much as the flows of borrowing and spending from day to day. The commercial paper market collapsed more than a year ago, shutting down a crucial avenue of financing for corporations (though the Fed's interventions are loosening it up some). Bank commercial & industrial lending, the lifeblood of routine commerce, is tightening too. Mortgage lending contracted in the third quarter, a very rare occurrence. At the same time, the Morgage Bankers Association's index of mortgage applications has tripled over the last few months, so Baker's claim about the number of applications flies in the face of some "pesky evidence." Interbank lending is also in sharp decline.
I really don't know why people are saying such dumb things.
Doug