Doug Henwood wrote:
>
> <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1297337>
>
> [Chari, Chistiano and Kehoe (2008), cited in the quoted passage, is
> the Minneapolis Fed paper]
>
> Bank Lending During the Financial Crisis of 2008
>
> Victoria Ivashina
> Harvard Business School
>
> David S. Scharfstein
> This paper documents that new loans to large borrowers fell by 37%
> during the peak period of the financial crisis (September-November
> 2008) relative to the prior three-month period and by 68% relative to
> the peak of the credit boom (Mar-May 2007). New lending for real
> investment (such as capital expenditures) fell to the same extent as
> new lending for restructuring (LBOs, M&A, share repurchases).
In 2008 there developed such an excess of capacity that frims with intelligent management quite sensibly ceased to plan new capital expenditures, while those firms that continued to apply for such loans were refused not because of any general unwillingness or inability of banks to lend but because the banks recognized that the capital investments proposed would be unwise and lead to default on the loans. All applications for capital investment that promised reasonable returns (was not in obvious excess of need) were accepted.
I have not the slightest idea whether this is correct or wildkly wrong, but it is the KIND of thing we need: analysis of basic causes, not pile-ups of facts which fail dismally to explain themselves.
Carrol