In the last few days I've made a quixotic complaint -- that we spend too much time thinking about stock-market prices -- and proposed a wildly quixotic solution. It is that we devise real time credit-congestion maps, showing where companies are about to be financially starved out of viability for lack of working capital, modeled on real time traffic-congestion maps now popular around the world. For visual amusement, here is the traffic situation in greater Melbourne, Australia just now:
Obviously my proposal is in the "thought experiment" category, rather than something that is actually going to occur. (Thus it is in the same category as another longstanding crusade I'll rev up again soon: to get rid of what is commonly but erroneously referred to as the "Nobel prize" in economics. More on that another time. Interim reading here.) One problem with the real-time credit map is that the underlying data points -- the countless daily business decisions based on available credit, among other factors -- can't quickly or easily be tracked down, and are held by people who often have a strong interest in keeping them private.
After the jump, a reader's note that spells out some of the further complexities of amassing and publicizing such data. But the reader also underscores my main point: the need to find some way to dramatize the reality that today's financial crisis involves things more serious than collapsing share prices.
A reader writes:
"One reason why there may never be a real-time company-credit congestion map is that in times of panic such as this, the perception of financial weakness or "congestion" can guarantee doom for a company - and, for this reason, companies will lie about their access to credit.
"The recent minor controversy regarding inaccurate LIBOR fixings was thought to arise from banks purposefully under-reporting their interbank rate (LIBOR is reported by banks as the rate at which they are offered money - not the rate at which they are lending to others). The thinking was, if a bank had inordinately high rates offered to it, that signaled that the market perceived it to be riskier than its peers, and therefore more likely to fail.
"In the post-Bear Stearns environment, with short-sellers hunting for their next kill and jittery investors abandoning ship at the first sign of trouble, banks feared that this perception would become reality. This makes sense - as a driver, when I see a congested road, I try to avoid it; as an investor or lender, I suppose I would do the same for a "credit-congested" company.
"That being said, I agree with you that we need more broad-based and insightful coverage of the current economic crisis. Sadly I feel like this global economic mess does not seem "real" to many people (or perhaps it seems a bit too "financial" or "math-y" - which it is) and thus the gravity of the situation is not fully appreciated. "
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