Word: charies
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Back in September, V.V. Chari, an economist at the University of Minnesota and an adviser to the Federal Reserve Bank of Minneapolis, got a call from a Congressman. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were arguing that they needed $700 billion to save the nation's financial system, and the Congressman wanted to know what to make of it all. Chari said he didn't know - he hadn't looked at the data. Policymakers kept talking about how banks weren't lending to businesses or to individuals or even to each other, so Chari pulled numbers...
...anecdotal evidence that lending to credit-worthy borrowers was doing just fine - it seemed every other day some community bank CEO was on CNBC talking about how many loans his institution was making to small businesses and people who wanted to buy cars or houses. As the story of Chari, his surprise realization, and the academic dialogue that followed make clear, understanding what is happening in the economy - let alone how to fix it - is an incredibly difficult task, even for people who have built their entire careers around doing just that...
...October, Chari teamed up with two other economists, Lawrence Christiano and Patrick Kehoe, and wrote a paper called "Facts and Myths and the Financial Crisis of 2008." In it the economists wrote that the United States was "indisputably undergoing a financial crisis and is perhaps headed for a deep recession," but the nature of the problem, they said, had been completely misrepresented. "Policymakers had made three very specific claims," says Chari. "That banks were not lending to non-financial businesses and households, that banks were not lending to each other, and that the ability of non-financial businesses to access...
...that sort of involuntary lending mean that other potential borrowers were getting crowded out? In a rebuttal to the Scharfstein paper, Chari and his co-authors wrote that they hadn't seen any data showing that banks weren't lending to credit-worthy companies asking for loans simply because certain firms were tapping pre-existing credit lines. "The argument is if you're a new customer walking into a bank, it's impossible for you to get a loan," says Chari. "That story may be true, but there's no convincing evidence that's what's going...
...Chari is more cautious. "Our position throughout has been that policymakers likely have access to information that is better than the information we have - and that it would be good for them to share that information," he says. "They've been remarkably unforthcoming about the rationale for their interventions." That seems to be a common sentiment. "The one thing they emphasize that we really agree with is they want policymakers to share more data that underlie their decisions," says the Boston Fed's Duygan-Bump. As a new Administration takes office and the process of spending hundreds of billions...