William Dunkelberg
Professor of Economics at the School of Business and Management, Temple University (Formerly Dean of the Fox School of Business)
Many people are concerned about the current state of our nation’s credit markets. There are many different opinions and there is a lot of confusion abroad. In this one-session seminar, nationally prominent economist Professor Bill Dunkelberg, known for the clarity of his explanations, will explain the main factors at work in the current situation.
“The Federal Reserve alerted us to a problem in credit markets in August, 2007. In September, they surprised markets with a 50 basis point cut in the Federal Funds rate and lamented that credit markets were “frozen”, ‘malfunctioning”, “unstable”. Following this was a sequence of cuts and warnings about recession risk and an economic slowdown. What was the source of the alleged credit market failure? Did housing cause all of this? Is this just a Wall Street problem (for a dozen large financial institutions) or is it happening on Main Street? Who cares if the Bank of America doesn’t trust Citicorp and won’t lend to them? Can the Fed’s policies fix this (the cure for the ills of easy money is more easy money?)? Can these Wall Street problems bring down the whole economy? Can we talk ourselves into recession? These and other questions will be addressed using a heavy dose of facts to deal with fictions.”
Notes on the Economy Excerpt
“An uptick in…lending could help businesses expand and reduce employment,” says the report, reflecting the view that it is credit supply that is the problem. The banks mentioned in the article are all of the “biggies” who had, and still have, major loan-loss problems and pulled away from small business lending. Missing in the report are references to the thousands of community banks who did not get caught up in the “bubble” and are the mainstay of lending to Main Street firms. Yes, credit is harder to get now at these banks than it was during the bubble, and it should be. Underwriting standards were seriously compromised, and bubble prices overstated the true value of collateral.
That the real problem is loan demand was confirmed while speaking to bank organizations in half a dozen states over the past year. Loans have to be repaid, meaning that the money must be used to finance the acquisition of employees or equipment that will “pay back” the loan. This is common sense. But a record numbers of owners – as high as twenty-eight percent – have reported that “weak sales” is their top business problem, while only four…