A Few Thoughts on the Credit Situation

June 2, 2008

It is convenient that immediately preceding the current credit-crunch, a few notable things happened. The bankruptcy code was changed, and the laws surrounding the payment structure for unsecured debt were changed, which resulted in minimum payments that are about twice what they previously were. Shortly thereafter, the Federal Reserve began targeting higher short term rates (the discount rate) which results in contraction of the monetary base, and a diminution of the supply of loanable funds. If you were a politically connected banking insider, you probably knew all about these turns of events before they happened, and were able to profit immensely.