Thursday, December 20, 2007

DIY financial crisis monitoring

Great quick article on a short-hand way to track the growing financial crisis, track the difference between LIBOR and Treasuries. LIBOR is the rate one bank loans to another and in theory should carry only slightly more risk (higher interest rate) than US Treasuries. Sure, Treasuries have the backing of the US government, so that should be pretty secure. But LIBOR has the backing of our entire financial system, which should be pretty secure as well.... but it seems it isn't.

Based on my readings, the difference between LIBOR and Treasuries will continue until the market feels that all the bad news from the financial industry has been articulated, but that could take a long time...

Gauging the credit crunch: A do-it-yourself guide

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