Never spend your money before you have it
(Thomas Jefferson)

Everyone not living beneath a stone knows what happened in equity markets last week. Included in that down/up roller coaster was the TED spread. Despite the absence of detail in the announcement credit markets see stability round the corner.

Or do they? Althought the TED spread has contracted dramatically in the wake of the announcement the 3 month LIBOR - OIS unsecured element of the spread is not exactly markedly different from its panic stations position. And this is the bit of TED that gauges risk as it is perceived by interbank lenders.

That suggests a persistent level of prudence (or mistrust) that would have been useful back in the promiscuous days of mortgage self-certification free love. These fellows are waiting to see the colour of Hank Paulson's money. Perhaps with good reason if 'The Hammer' lives up to his nickname. On the other hand the draft proposal (see links below) has the number $700 billion pencilled in.

Exhibit 1: Pre-Paulson 3 month LIBOR, OIS and 3 month T-bill rates, 18 September

Exhibit 2: Post-Paulson 3 month LIBOR, OIS and 3 month T-bill rates, 19 September

Just in related links:
$700 Billion Is Sought for Wall Street in Massive Bailout

U.S. Bailout Plan Calms Markets, But Struggle Looms Over Details
Proposed Wall St bailout to cost $700bn

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  1. Charles Butler // 9/21/2008 09:46:00 PM

    Not to mention what Friday's VIX thought of it all.

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