No soup for you

Still nothing.

No loans, no commercial paper.  The credit markets are still frozen.  

I am really shocked and amazed that there has not been more coverage of this story by the New York Times.  After a $700 billion, er, make that $1.5 trillion bailout, and massive capital injection into our banks, the loan money still is not trickling down to businesses and home buyers. 

In it, the reporter is surreptitiously on a conference call with JP Morgan Chase executives.  Chase took $25 billion dollars of the bailout money, at Treasury Secreatary Paulson's behest, after initially declining it.  Paulson insisted, saying that it would be bad for consumer confidence if the public saw that some banks were more in trouble than others.  Go figure.

After being asked by a lower-ranking executive about when Chase would start making more loans, the high-ranking executive running the meeting explained: 

[T]he same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.

Translation:  NO SOUP FOR  YOU.

Apparently, even the world's largest banks are not immune to the credit crisis of their own making.  Too bad the CEOs of those companies don't suffer the same consequences.

The TED Spread

I was hoping the market would bounce back a little today. Instead, it fell off the trampoline.

NPR's excellent new Planet Money podcast interviewed veteran analyst and trader Vinny Catalano about his recent blog post, in which he explains that the key economic indices to watch are not the Dow Jones and NASDAQ, but rather the 3-month Treasury bills and the London Inter-bank Offering Rate, or LIBOR.

Another vital statistic of the credit market is the "TED spread". TED is an acronym of T-Bill and ED, the ticker symbol for the Eurodollar futures contract. The spread is the difference between the two. For example, if the T-Bill rate is 5.10% and ED trades at 5.50%, the TED spread is 40 basis points (bps). Basically, the higher the TED spread graph, the worse the credit crunch, and the crappier the economy. The TED spread fluctuates over time, but historically has remained within the range of 10 and 50 bps (0.1% and 0.5%), until 2007.

Today, the TED spread is almost 4%.

Catalano says three month T-bills are a good "panic gauge" for credit markets. He says that we want to see short-term T-bill interest rates rise, and the LIBOR fall. This would indicate that people are not fleeing from stocks to "safe havens" like T-bills. Ironically, there has been so much panicked flight out of stocks that T-bills have been paying negative yield- we're paying the government to take our money, and keep it out of the stock market. Scary.

Conversely, the LIBOR is the rate at which banks lend to each other. The LIBOR rate typically hovers around 2% in a healthy economy. Banks can make overnight loans to each other and collect between 1-2% interest, typically a zero-risk, guaranteed profit. Not anymore.

The Federal Reserve cut interest rates one-half percent today to the crazy-low rate of 1.5%. That was expected to help bring the LIBOR down, and encourage inter-bank lending, providing much needed grease to the gears of the international credit markets.

The LIBOR jumped to 4.58% (overnight rate was 5.38%). T-bills? Down, from 0.8% to 0.63%. My 401k is down 30%, year to date. The mattress is starting to look like a good investment.

Danielle, honey, Daddy's a little worried.

The Day the Market Died

You never know.

And that's why I'm writing this. I've lived through the inflationary 1970s, with the long gas lines (back when gas was a scandalously high 60 cents per gallon); the malaise of the Jimmy Carter years; Reagan's double-digit unemployment; the savings and loan debacle of 1983; "Black Monday"- October 19, 1987, when the Dow dropped 22% in a single day; Y2k; the dot-com bubble; Enron's shame; 9/11; and what we thought was the sub-prime mortgage crisis.

None of those things were pleasant, but they all had a "rebound" effect. Now, I'm not so sure. This new thing- this Global Credit Crisis- feels much bigger, yet much more insidious. We're on the Titanic. Sure, there's icebergs out there, the water is treacherous, we know that. But we've got experienced, crusty sea captains navigating us safely through...

What was that awful crunching sound?

Oh, that's not an iceberg! It's just my 401k losing 20% 50% of it's value since last year. Whew.

I'm not an economic expert, but like many folks, I've been schooling up these past two weeks. There are great articles in The Economist, the Wall Street Journal, the New York Times, and many more. But the very best, clearest explanation of the current economic catastrophe has come from these two MP3 podcasts* of This American Life:

• The Giant Pool of Money
• Another Frightening Hour about the Economy.

Don't be fooled by the pithy titles; this is world-class reporting. And entertaining, too, for what that's worth. Listen to them in order, and keep in mind the dates they were posted.

*Note: you don't need an iPod to listen to them; you can listen to them on your computer, or download them and burn to CD, or transfer to any MP3 player you like.

After the news from Iceland today, the hairs on the back of my neck are standing up. I'm probably overreacting, but just in case, I thought I would document this period in our family's life, in case it brings any wisdom and perspective for my daughter Danielle, years from now. I'll explain what I understand about the crisis, but the podcasts do a probably do a better job of that.

A good friend of mine who is way smarter, and way, way more informed about this matter is hunkering down, financially. He's predicting the worst, as in hyper-inflationary Weimar Republic worst, or Chilean marshal law worst. I really hope he's wrong.

But you never know, y'know?