2008 September 18 Thursday
Treasury 3 Month Rate Almost 0%

The US 3 month Treasury Bill rate has fallen to almost 0%.

Investors pushed down the rate to 0.0203 percent on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. In a sign of banks' reluctance to lend, the rates charged for short-term loans relative to U.S. bill rates rose to the highest on record.

That rate has never been so low since before World War II. Yes, you have to go back to the late Great Depression years for a T-bill rate that low.

The Treasury-EuroDollar (TED) Spread, a measure of flight from risk, has soared.

The Wall Street Journal reported in Wednesday’s newspaper that overnight LIBOR, a key interbank lending rate, had surged to more than 6%. That rate declined to 5.03125% overnight. However, the key three-month lending rate rose to 3.0625% from 2.87625%. Despite news of the Federal Reserve’s bailout of American International Group, worries about liquidity spiked on news that U.K. bank HBOS may be facing short-term funding problems.

The TED spread hasn't been this big since 1987 or perhaps earlier.

Goldman Sachs might be able to stay independent. But the other still independent US investment bank, Morgan Stanley, is looking for a merger partner.

Seeking to avoid the kind of fate that led Lehman and Bear Stearns to collapse, John J. Mack, Morgan Stanley’s chief executive, made an unsuccessful effort on Tuesday evening to persuade Citigroup’s chief executive, Vikram S. Pandit, to enter into a combination, according to people briefed on the talks.

“We need a merger partner or we’re not going to make it,” Mr. Mack told Mr. Pandit, according to two people briefed on the talks.

Washington Mutual has put itself up for sale and Citibank might buy it instead.

Will a few mergers stop the financial panic? Or will it spread?

Share |      By Randall Parker at 2008 September 18 12:06 AM  Economics Financial

Stephen said at September 18, 2008 12:45 AM:

When there is a lack of confidence in the financial system government intervention increases panic. On the other hand, creative destruction (mergers etc) decrease panic.

The government should stick to prudential regulation and leave the market to devour the unfit.

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