Money Market

October 2nd, 2008 2:10 pm | by John Jansen |

My money market source is still as distressed as he has been the last several times we have chatted. He said that the recent quarter end has not brough relief and the market has much bigger preoccupations than that. He notes the 8 percent decline in financial company commercial paper in the most recent Federal Reserve data as an indications of the strains present in the system. I hate to be reundant but each time I speak to the fellow he notes that the dislocations are as severe as any ever faced by a critical financial market.

He offers an example and I can not use the names. This morning a AAA British bank borrowed overnight at 75 basis points. I think overnight Libor was 2.68 percent,so approximately 200 basis points through Libor.

Separately, another British bank,not so favorably viewed by the investing public,with a AA1/AA rating was forced to borrow overnight at 3.25 percent. There is a slight difference in the ratings but the spread between those borrowers indicates the extent of the credit crunch and the loss of confidence in the system

In a previous post I mentioned the T+650 basis point pricing of 5 yearAmerican Express credit. That would generally be considered a solid,stable American company with a deep and lasting franchise.

Markets get overdone and revolutions end in excess. In my opinion, the fact that American Express can trade that wide is the financial equivalent of the Reign of Terror during the French Revolution. Trust has been destroyed and devalued and it will take a very long time for it to revive itself.

I worry about our political class. This morning I cast aspersions on the market savvy of Harry Reid who spoke cavalierly about a nearly bankrupt insurance company. That displays a real lack of understanding  of the consequences of loose lipped statements.

I would also note that John McCain demonstrated a similiar lack of understanding of the situation during the debate last Friday. Twice during that debate he referred to the “fiscal crisis”. I gave him a pass the first time thinking that he misspoke. When he used the same phrasing the second time I was forced to conclude that he lacks an understanding of the complexity and nuances of the problem.

In the next debate I would request that each candidate offer three names whom they consider potential candidates for Secretary of the Treasury in their new administration. That will be a crucial post in January and the person in that seat must understand the nuances of the markets.

I apologize for rambling.

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  1. 12 Responses to “Money Market”

  2. By martino dolfini on Oct 2, 2008 | Reply

    Who now trust a rating? or better the rating agencies? in past years CDOs were structured by sellers using, amongst equivalent rating, those with higher CDS, a real measure for risk. So a AA1 pays a lot more than a AAA: so one must look at CDS a not ratig.I think that one of the consequences of this crisis will be a drastic reorganization of rating agencies, if not their death.

  3. By javamaan on Oct 2, 2008 | Reply

    the problem with looking at CDS spreads is that it is a thinly traded market. There is no transparency. One can move markets with $25mm notional bid. It is silly.

  4. By andrew james on Oct 2, 2008 | Reply

    What Reid said would have me or any other trader up on charges if not jailed. I hope he made money on the pass because if that was pure ignorance the republic is in big trouble.

  5. By mawa on Oct 2, 2008 | Reply

    URGENT: At 3:20PM today Thursday October 2, 2008.

    The has called for a bottom. Fireworks start tomorrow!

    Deatils of the call are at:

  6. By fatbrick on Oct 2, 2008 | Reply

    JJ, what is your 3 choices for Secretary of the Treasury ?

  7. By Milton Arbogast on Oct 2, 2008 | Reply

    Creditors have been in charge for a long, long time. They are still in charge.

    Deflation. Sustained, uncontrolled deflation.

  8. By John Jansen on Oct 2, 2008 | Reply

    Let me think on that and I will post an answer later.

    Actually, my first choice would be the New York Fed President Geithner.

    How about an encore performance by Rubin?

    and I need to think for a third choice.

    I do not think that we need any republican names!!

  9. By anon on Oct 2, 2008 | Reply

    Isn’t Paulson a Democrat? 🙂

    I don’t think we need any more GS names.

  10. By soupcon on Oct 2, 2008 | Reply

    Geithner is a terrible choice, as is Rubin.They are anchored in Keyesianism.What the next SecTreas has to demonstrate is the primacy of the role of the dollar and how changes in it’s value are the price from which every investment decision is made.That will come from someone grounded in classical liberal economic thinking, and I doubt you will find that anywhere on Wall St.Rubin didn’t have a clue, and neither does Hank Paulson.

  11. By jj on Oct 2, 2008 | Reply

    Rubin was the greatest Treasury Secretary this country ever saw , with the possible exception of Alexander Hamilton

    Rubin saved Clinton’s butt time and time again

  12. By M on Oct 3, 2008 | Reply

    You can actually easily see this back on the Libor reference bank pages, where you can see the entry of each bank for each maturity. The tripple A bank that is one of the USD reference banks offers much lower than the others, and also between the others there is more difference then normal.
    Also Libor is the offered rate, and bid offer spreads are easily 50 to 100 bps at the moment.

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