The Third Wave

We are entering the third wave of the credit crisis. How do I know this?



This is a similar graph to the TED spread, the first graph posted in the post below. It is different in that the TED spread is largely a measure of risk associated with all types of debt, measured by the interest rate spread between riskless treasuries and LIBOR, and this is the spread between for best grade and the worst grade commercial paper - or short term debt that needs to be paid back in nine months or less. The commercial paper markets are seizing again. This is because modern financial engineering decided to invent Asset Backed Commercial Paper - short-term debt issued in the name of assets(most usually property). The banks puts it assets in a bond(or securitize it like subprime bonds were)and allow investors to invest in the bond. The bonds maturity value is the value of the assets used to create the bond.