The Empire Strikes Back

On October 24, 2008, I posted on a paper from the Minneapolis Federal Reserve entitled "Facts and Myths about the Financial Crisis of 2008"

The paper listed what it called four myths that have arisen during the financial crisis:

1) Bank lending to non financial corporations and individuals has declined sharply.

2) Interbank lending is essentially nonexistent.

3) Commercial paper issuance by non financial corporations has declined sharply, and rates have risen to unprecedented levels.

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

The Federal Reserve Bank of Boston has now counter punched with its working paper called "Looking Behind the Aggregates: A Reply to “Facts and Myths About the Financial crisis of 2008”

The conclusion:

"As Chari et al (2008) point out in a recent paper, aggregate trends are very hard to interpret. They examine four common claims about the impact of financial sector phenomena on the economy and conclude that all four claims are myths. We argue that to evaluate these popular claims, one needs to look at the underlying composition of financial aggregates. Our findings show that most of the commonly argued facts are indeed supported by disaggregated data."