What Celent Didn't Consider

by: Kevin Mackey

Celent's report that came out yesterday is missing some pieces. To me it seemed more like another chance to point fingers at those in charge than objectively consider the whole picture. I am not saying their analysis is wrong, because they are certainly right in their statistical research, I am saying their analysis is incomplete. While numbers don't lie, they don't always tell the whole truth - just look at GDP statistics. Below is an excerpt from their report:

  • Overall lending by US banks is at a record high and has increased during the credit crisis.

  • Interbank lending is at record highs and has increased during the credit crisis.

  • Consumer credit is at record highs and has increased during the credit crisis.

  • Commercial paper markets are operating within their historical norms.

  • Lending by banks to businesses is at record highs and has been growing rapidly.

  • Municipal bond markets are operating within their historical norms.

  • Deposits at banks have shown a substantial increase since the start of the credit crisis.

My main problem with their presentation is that they assume the opposite of what they are arguing against. Instead of being in the midst of a terrible credit crunch in which credit is almost impossible to come by, they are assuming that credit is flowing "normally". There certainly is truth to the argument that lending has increased, but there are other complications that prevent their conclusion from being that easy which is why the (easy target) politicians don't deserve all the blame Celent wishes to reign down upon them.

As the chart indicates, bank credit has risen. OK. More importantly, where has it gone? One answer is to those that were granted credit on good terms during the credit boom and, in anticipation of a tougher credit environment going forward, tapped into these funds. This is still lending, but it is not the kind of lending that satisfies the exact statements of politicians. This crowds out those with less than perfect credit and makes their financing either incredibly expensive or impossible to obtain.

If you were the bank with which one of these fine companies had drawn their line of credit, would you be confident in your ability to be repaid the amount in full? This is where the parking of funds with the Federal Reserve comes in to play.

Even if some of the credit markets were operating under "historical norms" in terms of the flows of credit, they must also consider the fallout from the increasing cost of credit. If a company that needs debt to finance themselves (cough GMAC cough) can only tap it at an "historical" cost, is that really going to do them any good? The government was, yet again, the only entity in position to provide some relief for these borrowers. Some have failed, some have been saved, but by doing nothing, I can only believe the former would significantly outweigh the latter.

I know that this analysis was short and incomplete and I left out a whole lot of issues, but my point is that there are so many problems coming from so many different directions that blaming the government for statements that contradict their actions is a waste of time. In a way, I am guilty of the same thing with which I am criticizing Celent, but there is one difference. I have considered how they are right and wrong; they only considered how the lawmakers have been wrong. Does objectivity count for anything anymore in our blame focused society? If the government had done nothing, would Celent have written a report telling them why they were wrong to sit on their hands?

Disclosure: None