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Media headlines and some policymakers' assumptions surrounding the national credit crisis may be incorrect, a study released today by Celent LLC suggests. In "Flawed Assumptions About the Credit Crisis, a Critical Examination of U.S. Policymakers," Octavio Marenzi, head of Boston-based Celent, argues that Federal Reserve data suggest banks have continued to extend commercial and consumer credit at record rates in recent months. Consumer credit continued to grow throughout the summer, reaching an all-time high of $2.59 trillion in September, and commercial lending hit a record $7.27 trillion in October, Celent says. These trends contradict recent statements by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson that credit access for banks, households, businesses and municipalities has virtually dried up, Marenzi writes. "The assumption that credit has been severely curtailed across the board is incorrect, based on the government's own data," Marenzi tells CardLine. "We are in a deep financial crisis and a recession that will certainly get worse, but lending is continuing at record rates." Households with subprime mortgages and poor credit histories and businesses that are losing money may be having a difficult time borrowing money, "but there is no evidence of an aggregate decline in household credit in the U.S.," Marenzi says. "Healthy borrowers are having no trouble getting loans." The biggest risk of incorrect assumptions is the possibility that policymakers will make flawed decisions, he says. "A handful of troubled financial institutions that made bad bets and some industrial companies with poor business models are making an awful lot of noise, and they are influencing the whole debate and discussion around credit," he says. "This could be dangerous if policymakers jump to the wrong conclusions in this type of volatile economic environment." An October report by the Federal Reserve of Minneapolis, "Facts and Myths about the Credit Crisis," sparked Marenzi's research.
