This table comes courtesy reader John, and with rapidly moving markets, who knows what the current week will bring, However, notice the sharp one week increase in spreads on credit cards and auto loans. Even if the tone of credit markets improves, these high spreads are likely to be slow to revert, further illustrating that the consumer borrowing party is coming to an abrupt close.
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Spreads vs. what? Is the abrupt 50 point increase in the spread the result of the Fed cutting 50 bps and rates for cards/auto loans not changing?
Notice spreads in home equity did not move. I don’t know about auto loans, but variable rate credit cards are priced off of prime for the most part, and that did not change last week, so the Fed funds rate change would not have affected the income to investors on any new deals packaged. Thus the increase in spreads is pure additional return demanded by investors, no matter what the reference rate.
Now would be a good time for some economic leadership in the form of constraining retail lending rates so banks can’t take excessive advantage of interest rate spreads between retail services and nearly free money from central bank liquidity facilities and equity injections.
Capping rates for retail customers who are good credit risks might be enough to reduce the fall in consumer spending to a mere crash rather than cratering down to bedrock.
Since it’s only our money that’s keeping the financial system afloat at this point we might as well get some kind of stimulus out of them for buying in.
…further illustrating that the consumer borrowing party is coming to an abrupt close.
And that would be a bad thing how, exactly? It’s a couple of years late that this happens, but better late than never, no?
A.
AIG Knew of Possible Problems with CDS (credit derivative swaps)
http://marketwarnings.blogspot.com/2008/10/aig-knew-of-possible-problems-with-cds.html
Laughter in middle of stock market madness. Details below:
http://marketwarnings.blogspot.com/2008/10/laughter-in-middle-of-stock-market.html
http://www.thelogicgirl.com/2008/10/humor-global-financial-crisis.html
It’s not the top number in the spread, it’s the bottom number.
As the Fed “floods the world with unlimited dollars” and Treasury plans up to $2 trillion in fresh borrowing next year, Treasury yields are going to thunder higher like a Saturn V rocket.
I am head-banging, froth-at-the-mouth, loony-tunes bearish on bonds. Only a deflationist could fantasize that this gross, reckless abuse of both monetary and fiscal policy could leave rates quiescent. They are going to SCREAM higher.
— Juan Falcone
Juan-
The Treasury market trades and clears well over 1 trillion dollars EVERY DAY.
It is the most liquid and efficient market in the world.
It disagrees with you. Right now people are not dumping Treasuries.
They are shoving and pushing to BUY them.
Any chance they might know something you don’t?
One Trillion dollars a day disagrees with your view, if you believe in efficient markets….
Matt
Matt, me thinks Juan is correct here. The reason that they are racing to buy Treasuries is “they know” that we are facing an unstoppable worldwide systemic financial collapse.
Even with the proposed “rescue” efforts, which will be horribly inflationary, most wealthy individuals have no confidence we will be better off in a year or two.
Treasuries are the last bastion of hope to preserve wealth under such a scenario. Trouble is, as the FED debauches the currency you sustain losses anyway and the government can always do whatever it wants including freezing your account, redemptions, revaluing the dollar etc.
We are in a recession in the US, for all intents the US gov’t is insolvent (except that it can print dollars to give the impression it isn’t), virtually all the large banks are insolvent (though this is being kept a quasi-secret to prevent imminent market collapse while they try to intervene with our money) , the large WS brokerages that clamored for the right to compete in the mortgage market and without oversight so as to allow a “free market” to work most efficiently, failed miserably and also are now bankrupt, the FED failed it’s responsibilities and set the stage for the RE bubble and collapse.
The very people that created this mess now are manipulating the crisis to there benefit using fear and threats of financial treachery and gaining the assets of other competitors at dirt cheap prices, knowing that they will get unlimited financial backing without risk to themselves. This is the biggest hijacking of a nation’s wealth in the history of man.
Sad news is it has spread throughout the entire world. The next wave in the financial meltdown will surface soon and will terrify the markets yet again, and this time it will cause a waterfall event in the markets as we will already be in a very bad recession, with millions of unsold repo’d homes (being bought up by the gov’t), and slow if any sales as the public finally realizes that this is a much bigger financial disaster than WS, FED, Gov’t, have let on, even though “they” are telling you if you are willing to listen.
Lastly, didn’t LTCM base their model on the stock markets being efficient? IMHO, financial markets are really neither free or efficient, unless you are the “house” as in Las Vegas.
-20-