July 01, 2008
The Credit Crisis Isn't Over
Credit Crisis isn't over
This measurement, called the Discount Rate Spread by the U.S. Federal Reserve, shows the difference between high-quality (AA) and low-quality (A2/P2) commercial paper lending rates. When the credit crisis first broke, in August 2007, the Discount Rate Spread jumped dramatically, as fears of defaults led investors to believe credit vehicles from the less pristine issuers were less trustworthy than commonly thought.

Commercial paper was considered a safe market before the crisis, and is often held by money market funds. Ever since the credit crisis, such lenders are demanding a premium for taking on low-quality commerical paper, proving that we have elevated levels of mistrust in the commercial paper market.

In other words, fears of another credit meltdown are still affecting the financial system, and the credit crisis is not over.



 

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