We are at the brink of Commercial BankRun spread to Real Bankrun

Miat: Past week's Commercial paper pulling out by investors was basically a "bank run" in the corporate and commercial world. This is exactly what has completely shocked me and alerted me that the worst may be heading our way if this commerical bank run cannot be stopped. I can't imagine what would happen if this bank run continues for another few days if not another full week. If you still can't understand what I am seeing, let me tell you that the past week has made a qualitative leap forward toward a potential "bank run" into a wider economy.

That's how dangerous we are! If no bailout is to happen, we are talking about days and weeks before a society-wide real bank run happens on every Main Street.

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Investors pull out of US commercial paper
By Aline van Duyn in New York and David Oakley in London

Published: October 2 2008 19:41 | Last updated: October 2 2008 19:41

The amount invested in the US commercial paper market fell by $95bn during the past week, increasing concerns about the availability of money for banks and companies from this vital source of short-term funding.

Data released by the US Federal Reserve showed the amount invested had its biggest weekly drop since the central bank began tracking the sector in 2001.

In the past three weeks, the Fed data have shown that more than $200bn has been taken out of CP, a type of short-term debt that was widely bought by money market funds.

Of the $95bn weekly drop to $1,600bn, financial paper accounted for most of the decline, falling $65bn.

Money market funds have seen enormous outflows since Lehman Brothers filed for bankruptcy, sparking a flight to the safest possible investments, such as short-term US Treasury debt. Although traders reported more interest from investors on Thursday and a slight decline in the interest charged for CP transactions, it is thought unlikely that all the money that has been pulled out will return.

The freezing of the CP market – which has affected even top-rated companies such as General Electric, the conglomerate, and AT&T, the telecom group – comes as stresses in the bank lending markets have continued to build. In spite of a drop in overnight rates, the cost banks charge each other to borrow beyond a month remained high.

Dollar London interbank offered rates for three-month money rose to 4.2 per cent, a 5 basis point daily rise, while rates for the euro rose to 5.28 per cent, a 3bp rise, and for sterling to 6.3 per cent, a 3bp rise.

Significantly, the spread of three-month Libor for the dollar over expected official rates – considered a pure measure of credit risk as it measures the extra interest rates banks must pay to borrow relative to the government – hit historic levels. It rose to 260bp, a three-fold jump since Lehman folded two weeks ago.

“The credit markets are completely gummed up. Conditions have deteriorated every day over the past week,” said Suki Mann, credit strategist at SG CIB.

As well as regular CP, the amount invested in asset-backed commercial paper backed – by loans such as mortgage or auto loans – also fell, by $29bn in the last week.

Additional reporting by Nicole Bullock in New York

Copyright The Financial Times Limited 2008

所有跟帖： 

• That's why Congress is changing FDIC limit to 250K -miat42- ♂ (150 bytes) () 10/02/2008 postreply 15:53:14

• Right, the sky is falling! -都爱哈哈- ♀ (42 bytes) () 10/02/2008 postreply 15:59:59

• Agree with you, it is quite serious this time. -729418- ♀ (0 bytes) () 10/02/2008 postreply 17:17:53