(2008-10-01) Commercial Lending

Is Credit Crisis 2008 affecting Commercial Lending/Corporate Debt? Enough to warrant the Bail-Out? (Note that lending for Real Estate doesn't count!)

Sept22: Megan Mc Ardle explains Money Market firms and their role. If the FDIC hadn't stepped in to backstop the runs on the money market funds, it's not crazy to think that we might have seen a massive liquidation of huge portions of the banking system at fire sale prices.

Sept23: Caterpillar Inc had to pay a high price for 5-yr bond.

• hmm, how much of their income is related to Construction? (Real Estate)

Sept24: Alex Tabarrok questions whether there's really a Commercial Lending crunch.

• A commenter disagrees: Why do you use quantities instead of prices? I look at prices. If LIBOR minus OIS is record high, if 3-month T Bill was at zero, if junk bond spreads are close to record highs, if even AAA spreads are wide, if the dollar is trashed, if gold is soaring, doesn't that give self-evident data on the credit crunch?

• Another commenter notes: As I was told, a bond deal that was inked 4 weeks ago could not take place today. In this case, Citi, the remarketer, is refusing to pick them up. There are no buyers for bonds as hedge funds and money market funds are selling assets to meet the demand of individual investor liquidating their position.

Sept24: looks like non-financial market has disappeared.

Oct1: big industrial companies, outside the distressed building sector, are able to fund day-to-day business cheaply by selling Commercial Paper... Volumes in the Commercial Paper markets are diminishing as Money Market funds draw in their horns. They fear that their customers, spooked by the chaos, will begin to redeem their money... There is, however, a supply of liquidity available in the corporate sector, the proceeds of years of strong corporate profits and the build-up of reserves. This money could be tapped if there was a market that functioned effectively to match those flush with cash with firms requiring short-term funds... Few corporates would wish to risk their balance sheets in setting up banks, but perhaps the time has come for an independent clearing house for commercial lending, owned by the borrowers - an institution that had no function but to match lenders and borrowers. Hello EBay?

Oct7: the government plans to buy/support Commercial Paper.

Oct8: the market hasn't improved instantly. In the week ended Oct. 1, commercial paper outstanding fell to $1.61 trillion, seasonally adjusted, from $1.70 billion in the previous week. Since the summer of 2007, the market has shrunk from more than $2.2 trillion. Recently, it's been hard for many companies to issue commercial paper for more than overnight or a couple days, market participants say. Money Market funds are typically the largest holders of commercial paper, accounting for about one-third of outstanding commercial paper, according to Standard & Poors.