The Post, which relied on David Lereah, the chief economist for the National Association of Realtors, as its main source on the housing market during the bubble, seems determined to use the same level of dexterity in its coverage of the crash. In reporting how the credit crunch is damaging the economy, it told readers that a bank operating in New York and New Jersey said that "it would cut off the financing of the inventories of about 20 auto dealers in New York and New Jersey, dealing another blow to the reeling automobile industry." Folks, this is not the credit crunch. This is the auto industry that is sinking due to plunging car sales. Dealers lose money when they have cars sitting unsold on their lots. Banks never make loans to businesses that are losing money, if they can avoid it. The auto industry and its dealer network are going to shrink because of both short-term factors (i.e. the recession) and long-term factors, most importantly the shrinkage of the Big Three market share. This is not pretty, but it is not the result of the credit crunch. In the same vein, it is ridiculous to claim, as this article does, that mortgage interest rates are "stubbornly high." Mortgage interests are hovering near 6 percent. This is an extremely low mortgage interest rate, especially at a time when the inflation rate is running in the 4-5 percent range. The mortgage rate is high relative to the rate on U.S. Treasury bonds, but this is due to the fact that fear has driven these yields to extraordinarily low levels. If people were less fearful, the gap between mortgage rates and Treasury bond rates would shrink, but this would be due to the latter rising, not the former falling. There is a need to take extraordinary measures to maintain the smooth flow of credit in the weeks and months ahead, but that should not mean that every failing business will be able to borrow as much as it wants or that every underwater homeowner can get a home equity line of credit.
--Dean Baker
