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Commentary

bMighty vs. Bernanke - The TED Spread

The rANT is learning about arcane new finanical measurements on a daily basis -- and we are not pleased about it. Today's unhappy word is the TED Spread, the difference between what banks pay to borrow from each other for 3 months and what the Treasury pays. TED is going places it has never been before, and they are not good places, which helps explain why the market dived another 679 points today.
The rANT is learning about arcane new finanical measurements on a daily basis -- and we are not pleased about it. Today's unhappy word is the TED Spread, the difference between what banks pay to borrow from each other for 3 months and what the Treasury pays. TED is going places it has never been before, and they are not good places, which helps explain why the market dived another 679 points today.That's a drop of more than a third of the market's value in the past year, and some 2500 points in just the last 9 trading days.

And remember, the stock market is just a sideshow. The real issue is the credit markets, and that's where the TED Spread comes in. The difference between what banks and the Treasury pay to borrow money for three months has never topped 400 basis points before -- it's now been above that level for two days running. (It was about 104 basis points a month ago.) The Libor-OIS spread, the difference between the three-month dollar Libor and the overnight swap rate, also hit records. It all means that banks are still too terrified to lend money to other banks, which is paralyzing the rest of the financial system. The amount of commercial lending continues to fall.

Today, the auto industry was the chief victim, with GM losing almost a third of its value and Ford dropping more than a fifth. Fortune magazine has started a death watch.

Technology did a little better, helped by IBM's better than expected earnings report, but were ultimately crushed by the overall market's problems. Still it was a better day for computers than cars -- and for spreads named TED.

Oh, and The rANT found this nice explanation from The Atlantic on how to tell if the bailout is working.

More From bMighty: Financial Crisis Survival Kit