September 29, 2008

TED Spread Yikes!

The TED spread is an indicator of perceived credit risk in the general economy. The bigger the TED spread, the greater fear among banks that an over-night loan from one bank to another won't be paid back.

The TED spread is the difference between the three-month T-bill interest rate and three-month LIBOR (LIBOR reflects the credit risk of lending to commercial banks, where as T-bills are considered risk-free... we'll see how long that lasts).

During the summer of 2007, the Subprime mortgage crisis ballooned the TED spread to about 1.5-2.0%.

On September 17, 2008, the record set after the Black Monday crash of 1987 was broken as the TED spread exceeded 3.0%.

Today, we're looking at a TED spread of 3.5%. Yikes!


Wikipedia so it must not be true.


1 comment:

libhom said...

I suspect this is partially due to market manipulation by rich speculators. I think most of Monday's stock market drop was due to speculators driving stock prices down for two goals:

1) Intimidating Congress and the public to accept the Wall St. bailout.

2) Creating enough of a panic to drive stocks way below actual values. Then, they can buy up the stocks for much less than they are actually worth.