“The TED spread is a measure of liquidity and shows the degree to which banks are willing to lend money to one another.”Click here for a chart of “The TED Spread” and examine the 5 year history.
Click here (for a somewhat dated chart) and note that recent spreads in excess of 300 basis points are higher than levels reached during what some call “The Crash of 1987”.
But, click here for a chart of the S&P500 Index and put the so-called “Crash” of 1987 in perspective.
Personally, I am NOT convinced that “The TED Spread” justifies this $700 Billion Bailout. But, at LEAST we now have a somewhat legitimate metric to debate and discuss.
“I think… so long as banks can borrow from the central bank overnight, the TED spread is largely unrelated to their real-world cost of capital. Which doesn't make me an optimist, by any means. But I do think that the TED spread can remain elevated for some time without the world coming to an end.”