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Thursday, October 02, 2008


no credit market relief

alea points out the highest libor-ois spread on record -- and this after the end-of-quarter funding squeeze.

john jansen looks at the market for corporate debt:

The market in my opinion is on the verge of ceasing to function. ... It is a scary story.

... The market in my mind is on the verge of shutting down. There is sand in the gears and the machine is about to break down on the side of the road.

It is nearing the time when my next post will be an obituary for the fixed income market.

meanwhile -- following an extortive deal with goldman sachs, warren buffett takes general electric to the cleaners. as david merkel commented at alea:

After netting out the value of the warrants, the interest rate paid by GE was 13-14%, versus 17% for GS.

these companies are desperate for capital, and it's only by virtue of their size and nameplate that they are able to raise anything at all.

stocks are oversold even after some relief form monday's crash. but i simply would not hazard that there is not a sudden, massive down leg out there in the near future. with interbank funding -- the largest and deepest lending market on earth, mind you -- frozen, commercial paper frozen with the prospect of deterioration, capital raising in the financials impossible on anything but the most punitive terms for the best names, and now corporates on the verge of freezing... disaster scenarios such as those broadly outlined by willem buiter and john mauldin here and here -- including a possible generalized run and the failure of the payments system -- are looking more and more probable, perhaps irrespective of the paulson plan.

UPDATE: more from cr.

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