There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder's message was

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Last week I participated in a conference hosted by the Federal Reserve Bank of Boston, at which I discussed the new lending programs and asset acquisitions pursued by the Federal Reserve over the last two years. Previously I shared with Econbrowser readers empirical evidence on the effects these targeted liquidity operations seem to have had. Below I reproduce my remarks from the conference on the underlying motivation for using such measures, in which I suggested that the critical question is what was the underlying cause of the financial stress to which the Fed was responding. I distinguished between two possible interpretations of how the financial crisis arose.

Perspective 1: Everybody just panicked

The first interpretation of what went wrong is that financial markets were pricing risk correctly in 2006 but began to overprice risk in 2007. Keister and McAndrews analyzed a situation

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Man of the people Barney Frank is proving how difficult it is for elected officials to learn the lessons of history. In a move that goes beyond dumb, Frank has written a letter to government-backed mortgage lenders Fannie Mae and Freddie Mac asking them to relax recently tightened mortgage standards for condominiums.

What part of “subprime crisis” doesn’t blustering Barney get? In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. And Freddie Mac is due to implement similar policies next month.

But according to Frank this “may be too onerous” and could lead condo buyers to shun new developments, according to the paper.

Frank’s fingerprints are all over the subprime mess and the ensuing credit crunch. Yet he continues to pin the recent collapse on the private market.

The Wall

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Links to some interesting papers that I recently read.

The first comes from a conference on financial markets held at the start of this month at the University of Illinois in Chicago. Last fall, V.V. Chari, Larry Christiano, and Pat Kehoe received a lot of attention (e.g., Tabarrok, Avent, Economist, Kwak, Bonddad, and Thoma [1], [2], [3],) for noting that aggregate lending by banks was in fact increasing during the period in which many analysts were describing it as sharply curtailed. At the Chicago conference, Federal Reserve Bank of Boston economists Ethan Cohen-Cole, Burcu Duygan-Bump, Jose Fillat, and Judit Montoriol-Garriga argued that those aggregate numbers conceal some very significant compositional trends, namely, previously existing lines of credit were being drawn on by borrowers and a sharply increased fraction of lending was consumed by securities originally intended for securitization

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The following are some thought-provoking articles I have read over the past few days that readers may also find of interest:

• David Kotok (Cumberland Advisors): Does the stock market rally have legs? April 11, 2009.

• George Magnus (Times Online): Political courage is vital for a real recovery, April 13, 2009.

• John Hussman (Hussman Funds): Green shoots over thin ice, April 13, 2009.

• Financial Times: Britons turn to religion over debt worries, April 12, 2009. The growing demand for financial and legal advice from places of worship is prompting many to launch a new type of service in the downturn

• John Sylvia (Wachovia): Economics as strategic input to business decision-making, April 13, 2009. Often the biggest misses in bank strategy have little to do with the day-to-day management

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The credit crunch. We all know it's here, and that it's impacting virtually every corner of the financial markets. But a lot of investors don't really understand how a crunch really works ... why it's so insidious ... and why the Feds' efforts to ease the logjam have been largely ineffective. So let me try to get at the heart of the matter today. It boils down to two key forces ... Force #1: Many lenders lack the DESIRE to lend. Commercial and investment bankers aren't a brave bunch, by and large. They move like a herd. When one bank or lender comes up with a new loan product that generates volume and profits, others quickly pile in and copy it. When one lender gets more aggressive with its qualification standards, it doesn't ...