Just two days after the Tarp finally came into being, is the bailout already moving into its next stage? Namely, companies and states?
Bloomberg has this story today:
Oct. 6 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month’s downfall of Wall Street titans: its spread to corporate America and state and local governments.
So far Tarp 2 has done little to help your run-of-the-mill corporate, as Bloomberg notes:
Even as confidence grew that Congress would pass the bailout, banks hoarded cash, indicating the proposed purchases of devalued mortgage assets may not be able to stop the credit crunch from widening.
As discussed before on FT Alphaville, the commercial paper market for corporates has all but dried up in recent weeks as investors hoard cash or shift into commercial paper for financials. Indeed, the amount invested in commercial paper dropped by $95bn last week, according to the latest Fed data, while the Libor-OIS spread reached record levels.
That means companies like General Motors and ILFC (see below list from Bank of America), have had to draw down on back-up facilities for their short-term credit needs. US states “may be forced to turn to the Federal Treasury for short-term financing,” Guvernator Arnold Schwarzenegger wrote in a letter to Hank Paulson before Friday’s bailout vote. Oregon has already had to cancel a planned $21mn bond sale because of market disruption.
There’s one recent positive for short-term credit markets, however. Last Thursday prime money market funds (critical to the commercial paper market) posted their first net inflows ($1bn) after losing $470bn since Sept. 10, according to BofA’s Jeffrey Rosenberg:
The shift in institutional funds may reflect the impact of the Treasury insurance fund, and Crane reports that 9 of the 11 largest Money funds have now signed up for the program. That suggests retail outflows should stop helping at least to stabilize conditions in the short-term markets.
Which means money markets are starting to look like this:
Related links:
The Paulson Plan ponzi scheme – FT Alphaville
Credit tappin’ – FT Alphaville