the financial crisis. it is difficult to do this with precision in general, and it is especially difficult to undertake analysis so soon after the events have occurred with so little data since the policy implementation. however, what we can do is look at how conditions in specific financial markets, and credit volumes more generally, have evolved, and ask whether this information is at least suggestive that the policies that we have implemented have worked to avert a far more severe and detrimental outcome. i will talk first about programs aimed at conditions in specific markets and the responses of those markets. i will then move to a discussion of credit aggregates more generally. i will use losses on lehman brothers'debt securities that resulted from the investment bank's bankruptcy caused one money market mutual fund to " break the buck, " with others also rumored to do so. this situation led to a rapid escalation in money market mutual fund outflows such that short - term funding markets for businesses and municipalities essentially froze. interbank funding markets also stopped functioning, and overnight rates soared to extraordinarily high levels. the federal reserve flow of funds data for four major credit types – residential mortgages, consumer credit, commercial real estate lending, and commercial and industrial loans – to compare credit aggregates in the current cycle to previous recessions generally considered to be credit - crunch periods. in particular, i will compare credit in the current crisis to the 1990 - 1991 episode that, as you might remember, also included a financial crisis. to preview my conclusions, i confess that i was actually rather startled by the pattern of the data. i originally started to look at these data to determine how much worse the credit contraction in this episode was compared with previous episodes. instead, the data suggest that the actual credit contraction in this episode has been quite subdued compared with what might have been expected. so i do think that policies have helped maintain the flow of credit to businesses and households. how well have policies to contain the crisis worked? a market - by - market perspective the policy responses to the financial crisis have been substantial and have occurred on all fronts. fiscal policy and monetary policy, as well as policies relating to government guarantees and safety nets, such as deposit insurance, have been used to improve conditions in the financial sector. in discussing these policies and how they appear to have worked ( or will likely work in the case of more - recent policies ), i will start with policies and programs implemented by the federal reserve before moving to policies implemented

contracted quite sharply. for consumer credit ( in the lower - left panel ), it matters – in the lead up to the most recent business cycle peak – how we measure it. without home equity lines of credit ( helocs ) and home equity loans, the increase in consumer credit in the lead up to the 1990 and the 2007 business cycle peaks are broadly similar. if we include all helocs and home equity loans, which can be used in a similar way to consumer credit, then lending in the lead up to the 2007 business cycle peak – represented by the thin red line – increases more notably. 14 consumer credit contracted in the 1990 - 91 recession but has remained broadly flat in the current downturn, albeit with a slight downward drift in more recent quarters. for home mortgages, shown in the top - left panel, lending expanded similarly in the lead up to both the 1990 and the 2007 business cycle peaks. in contrast to the other types of credit, the normalization of each series is also made so that the difference between the level of a lending series at any date and the level at the business cycle peak has a percentage interpretation. for example, if a line has a value of 80 at some date before or after the business cycle peak, it means that the level of the category of lending that the line represents is 20 percent below the level of lending at the business cycle peak. likewise, if a line has a value of 110 at some date, it means that the level of the category of lending that the line represents is 10 percent above the level of lending at the peak of the business cycle. note that cash - out refinancing – like helocs and home equity loans – can also be used in a similar way to consumer credit, which is not included in the chart. this type of lending did not contract in the 1990 - 91 recession but has contracted since the peak of this cycle. apart from home mortgages, the drop - off in credit in the 1990 - 91 recession was notably more severe than what has been experienced so far in the current downturn. there are two possible reasons why this might happen. one is that demand for credit turned down more sharply in the 1990 - 91 recession than in the current downturn, but i do not think that this is the reason. the slowdown in economic activity in the 1990 - 91 recession was nowhere near as severe ( either in terms of depth or duration ) as it has been to date in the current