Why low rates failed to boost business investment

IF you applied for a mortgage in the past few years, you probably noticed that the record-low rates during much of that period were only available to a lucky few. Lending standards tightened a lot after the subprime fiasco.

The torturous process – supplying the lender with triplicate tax returns, W-2s, character references and so on – was a form of capital rationing. Rationing is the term for markets where not everyone is allowed to buy. When this happens, prices don’t mean what they seem to. Under capital rationing, the true cost of capital includes not just the interest rate, but the burden of meeting all the criteria to prove you’re a worthy borrower.