No. It's not the same thing.
Eg. Usually I loan out $1 billion. But now, my risk appetite is smaller because of my desire for a smaller leveraged balance sheet, hence i will loan out only $100 million.
So even if I trust that you are able to pay back the loan, I will no longer lend to you because I have no desire to lend so much anymore. The overall credit supply decreases.
Maybe my initial post was not clear, I believe the main reason for the tight market is this: Constriction of desired leverage -> Decreased credit supply
Eg. Assuming the precrisis loan-to-cash mean leverage is 500%, USD 100 billion of cash can yield USD 500 billion of loan supply in the credit market. Now, the loan-to-cash mean leverage is about 200%, so the same USD 100 billion of cash will yield only USD 200 billion of loan supply. Thus, the Fed has to print a lot more cash to restore the precrisis credit supply. The announced capital injection is not enough. They have to inject a lot more. If they don't wish to print that much cash, the Fed can be the direct lender and assume the precrisis leverage themselves.
Here's a good article that explains it all:
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10...
Eg. Usually I loan out $1 billion. But now, my risk appetite is smaller because of my desire for a smaller leveraged balance sheet, hence i will loan out only $100 million.
So even if I trust that you are able to pay back the loan, I will no longer lend to you because I have no desire to lend so much anymore. The overall credit supply decreases.
Maybe my initial post was not clear, I believe the main reason for the tight market is this: Constriction of desired leverage -> Decreased credit supply
Eg. Assuming the precrisis loan-to-cash mean leverage is 500%, USD 100 billion of cash can yield USD 500 billion of loan supply in the credit market. Now, the loan-to-cash mean leverage is about 200%, so the same USD 100 billion of cash will yield only USD 200 billion of loan supply. Thus, the Fed has to print a lot more cash to restore the precrisis credit supply. The announced capital injection is not enough. They have to inject a lot more. If they don't wish to print that much cash, the Fed can be the direct lender and assume the precrisis leverage themselves.
Here's a good article that explains it all: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10...