In addition, those that are interested in dumping their assets onto the government's books will have to consider a number of factors ranging from the price of the securities, to the implications of having to give the government equity ownership and any loss of executive pay. (Crescenzi discusses the credit freeze with Jim Bianco in the video)
Frayed nerves take time to heal, which means that fear and anxiety will remain a major part of the pricing of financial assets. I have been noting, for example, that the financial crises of 1987 and 1998 were both followed by roughly two months where key fear gauges stayed high.
For example, both the TED spread and the yield spread between LIBOR and fed funds did not peak until two months after the crises of '87 and '98. It is human nature for frayed nerves to take time to heal after a shock--healing of any kind is more a process than an event. In 1987, the LIBOR/fed funds spread peaked at 206 basis points on October 19th, fell back to 31 basis points a few weeks later, and then widened steadily until early December before stabilizing for good.
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In 1998 there was a similar pattern. The yield spread between LIBOR and the fed funds rate did not peak until November 17th, 1998, which was roughly three months after Russia's default and Long Term Capital Management's failure roiled markets. The TED spread, a fear gauge that measures the yield difference between Eurodollar deposits and T-bill rates, took two months to peak after the summer's events.
It is human nature to remain anxious following a shock, which recent events obviously are. Keep in mind this top-down view, which fits with the message of my new book, Investing from the Top Down: the world's 6 billion inhabitants and the progress of mankind will not be held back just because 3 million people didn't pay their mortgages on time.
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