Thursday, September 25, 2008

TED

As my friend from the FT John Authers notes, the "TED Spread" has shot up again, and is at 3.37% as I write. I wanted to mention the TED spread (despite its financial nerdiness) because I discovered it a week ago when the market crashed and every one was talking about this odd number, and have been watching it ever since.

The TED spread is the difference between the safest investment out there, the 1 month T-Bill interest rate, and the rate that banks lend to each other, called the London Inter Bank Offered Rate. When the gap between those two increase, it is an indication that banks are having a hard time moving money and that they consider it a risk to lend to other banks.

On the day of the crash last week, the TED was at 3.13% and that was the highest since 1987. If John is to be believed the only thing holding up the celling is the belief that banks are about to get $700 Billion in free money.

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