Posts Tagged ‘commercial paper’

Credit crunch update

21 February 2009

The “credit crunch” was at the heart of the media coverage of the financial crisis as it came to a crescendo last fall, but I haven’t heard much about it lately.  From what I do hear, the credit markets have loosened up quite a bit, with the big exception of mortgage loans that once got repackaged as securities.  Seems nobody wants to buy mortgage-backed securities (new or old) anymore, which is more than understandable.  I don’t either.

John Authers of the Financial Times recently noted that the commercial paper market, whose tightening last fall was evident in a big spike in interest rates, has eased considerably, as has the market for corporate bonds:

‘… there is evidence that banks’ problems may have been ring-fenced for the short-term. As Mark Lapolla of Sixth Man Research in California points out, use of the Federal Reserve’s commercial paper facility, for making short-term loans to companies, has dropped in the past few weeks, so businesses are finding other sources of finance. Large companies are issuing bonds after months when this was impossible.’

Authers seems to think the risk of a systemic collapse is now past:

‘The market believes that financial stocks could go to zero without damaging the rest of the economy. They are down 28 per cent for the year while no other sector is down more than 12 per cent.’

(more…)

Advertisements