hear almost every
day that banks will not lend to each other, or will do so only at
punitive interest rates. Credit spreads -- the difference between the
government cost to borrow and what private-sector borrowers must pay --
are at historic highs. Ms. Anna Schwartz,
with Milton Friedman of "A Monetary History of the United States"
explains that this is not due to a lack
of money available to lend, but to a lack of faith in the ability
of borrowers to repay their debts.
"The Fed has gone about
as if the problem is a shortage of liquidity. That is not the basic
problem. The basic problem for the markets is the uncertainty if the
balance sheets of financial firms are credible." Ms.
Schwartz here provides the evidence
to restore interbank trust and how to avoid the present financial
crisis from develloping in a full blown depression.