Tuesday, January 13, 2009

U.S. Renaissance Late, Ted-Spread Blamed

Is anyone else tired of hearing Larry Kudlow's claims that the "Ted Spread is down" (which we assume is the new way of saying a spread is tighter, or alternatively the CNBC grammer nazis could be on strike, as evidenced by such pearls from Trish Regan as "Retail consumer spending changing for the good") will be the reason for the next American golden age? It is not like we have reason to doubt the intentions of the good people at the British Bankers' Association, but even your first year finance student will tell you that for any market to have some indication of value, you need to have a valid bid and valid offer. Now Libor is merely a measure of how willing banks are to lend to one another.... Well, when you have every government in the world lending directly to banks in discount windows, teller windows and drive-thru windows, which bank in its right mind would chose instead to borrow from your Barclays, RBS or Citi? It is feasible that if Zero Hedge were to get a bank charter at the local 7-11, show up at the NY fed and ask for a cool million, we will likely get that and more.

Isn't it logical that in the complete absence of bids for interbank loans, Libor levels will merely indicate whatever the offerors are willing to have Bloomberg publish (and it's not like anyone has an agenda in making the Ted spread go "down").

Enough with this Ted Spread BS, it is just another flawed metric in this transitory capitalism-to-communism environment.
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