Friday, October 10, 2008
Why the crisis got worse
I have an article in Financial Express on why the crisis got worse after the Paulson plan was approved.
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A bit offtopic :Commercial paper crisis?
ReplyDeleteLet us look at some of the data provided by the Fed itself and ignore the chatter on TV and chatrooms
http://www.federalreserve.gov/releases/h15/data/Business_day/H15_NFCP_M1.txt
Non financial commerical paper -interest rates for 1month
10/01/2008, 2.00
10/02/2008, 2.01
10/03/2008, 1.98
10/06/2008, 1.80
10/07/2008, 1.50
Compare to that 1 year back:
10/01/2007, 4.79
10/02/2007, 4.69
10/03/2007, 4.71
10/04/2007, 4.70
10/05/2007, 4.70
Interest rates today are actually lower!
For financial commercial paper
10/01/2008, 3.63
10/02/2008, 3.12
10/03/2008, 2.85
10/06/2008, 2.80
10/07/2008, 2.86
and 1 year back
10/01/2007, 4.77
10/02/2007, 4.79
10/03/2007, 4.78
10/04/2007, 4.80
10/05/2007, 4.89
Rates are still lower today.!
Now see commercial paper outstanding:
http://www.federalreserve.gov/releases/cp/outstandings.htm
For the week that ended October 8, total commercial paper outstanding amounted to $1,459 billion down from the $1,607 billion reported for the previous week, but is a 2.9% percent drop a credit freeze?
I think talking heads are bullshittng or the Fed's data is bogus. I think the former is the case today.
BTW, the Sonic - GE scare, it is an urban legend.Sonic came out and denied they are facing issues raising money and they had no specific issues with GE either.
This is like Orson Wells(spelling?)'s War of the Worlds -the masses believe anything they hear on TV
falling off a cliff?exactly,about the CP outstanding is only 12 or 13% lower than what it was in March 2008. is a 12-13% reduction a jump off the cliff?.
its only a 5-6% fall from last years avg outstanding . diving off a cliff sounds like hype to me.
interest rate comparison is not that appropriate.the point is that it is much lower than the supposed inflation of 3% -so people are ready to lend at less than inflation rate -not a sign of any crunch