Credit is not the problem in the crisis
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TEXT OF INTERVIEW
Scott Jagow: You ready for this? A new report says there is no credit crunch. There’s a financial crisis, obviously, but access to credit is not the problem, even though the Treasury and the Fed have said it is a problem. This report comes from the financial services consultant Celent. And we’re joined now by the head of the firm, Octavio Marenzi. Octavio, this is kind of surprising. What are you basing this on?
Octavio Marenzi: Mostly from the Federal Reserve itself. So the vast majority of the numbers that we used in this report actually come from the Federal Reserve, and in area after area what we found is that really, a lot of the lending, a lot of the things being said about the credit crisis or the nature of the financial crisis aren’t born out by those numbers. So we found that bank lending is at a record high, consumer credit is at a record high, inter-bank lending is at a record high. All these things that we’ve been told have basically dried up are actually flowing quite well.
Jagow: So are you saying that a few bad apples among the banks are causing, have caused all of this uproar about credit?
Marenzi: I would say that’s probably what’s happening, that a few very large institutions are in financial difficulty, they’re having a hard time obtaining credit. And if you look at the panel of banks on the LIBOR rate, more than half of them I would put in that category. Now, there are a lot of banks out there who didn’t make bad bets, who didn’t get very involved in the subprime markets, and they’re doing quite OK — and they have no shortage of credit for those kinds of institutions.
Jagow: Are you that the Treasury Secretary and the Fed Chairman are A. misinformed or B. not telling the truth?
Marenzi: I’m not saying either — I don’t want to accuse them of not telling the truth. I think they’re analyzing the situation and coming to conclusions about it, but I don’t see where that information is coming from. And even economists within the Federal Reserve aren’t seeing where they’re coming to these conclusions either.
Jagow: OK, then the bottom line is if it’s not access to credit which is causing this financial mess, what is?
Marenzi: Well, what’s causing the financial mess is that a number of institutions took very, very large risks — in hindsight, very poor risks — and got caught. So they lent to the wrong people, they lowered their lending standards, and they lost lots of money as a result of it. But I would point out it’s not all banks that did that, there’s a large number of banks that did not do that. But unfortunately, amongst the top banks in the country, there’s a fair number who got caught in that trap.
Jagow: Well, certainly eye-opening information. Octavio Marenzi from Celent. Thanks for joining us.
Marenzi: Thank you very much.
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