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Dr. Black asks, AngryBear Answers

The question:

How much was credit being funneled away from all other sectors in the economy?

The answer: Very little if any. Neither the general consumer lending:

nor the specific Real Estate lending:

appears to run in a different direction that Business Loans, except possibly, in the latter case, in late 2003 and early 2004.

Looking at the absolute numbers, while there is a significant negative correlation with consumer lending for the period, that is more than offset by the significant positive correlation with Real Estate lending over the period.*

So the statement probably made a good soundbite, but the reality is that all lending generally increased during the peak of the bubble. There does not appear to be evidence of “crowding out” of Business Loans.

*Real Estate lending for the period averages more than four times greater than consumer lending (2.73 trillion v. 680 billion), so the net result over the period is positive to business lending.

By contrast, a regression of the changes over the same period and there is virtually no support for the idea; Adjusted R^2 was slightly negative, and the coefficients both include 0 in a 95% confidence interval.

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Small Business topic


H/T Naked Capitalism for this New York Times article concerning the loan program established in May to help small businesses as part of the stimulus program.

With $255 million, the program is prepared to make about 10,000 loans of up to $35,000 each. As of Monday, the agency reported that only 1,127 loans, totaling $36.8 million, had been extended.

While the agency maintains that the program is on track, some in the banking industry say the banks are moving slowly because they have little incentive. “There’s not a lot of profit motive in a $35,000 loan stretched over six years,” said Paul Merski, chief economist for the Independent Community Bankers of America, a trade association.

Bob Seiwert, of the Center for Commercial Lending and Business Banking at the American Bankers Association, says “stringent underwriting standards” will require as much work as larger loans, making these even less economical.

Rdan here. What is a small business? is discussed here at Angry Bear and Small Business link is here,

SBA loans to big box stores ,

small business as an American dream ,

and the real world of small businesses ,

and gov intervention discourages local agricultural development.

Update: kharris points us to Grameens Foundation. Especially for the really small business.

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