With a tip of the hat to Zero Hedge, a Bloomberg article outs a situation I have been following for a couple of weeks: money markets are under some threat of seizing up.
Remember the bad old days of ’08? We already had a shaky market situation, but when people woke up one day and realized they couldn’t trust each others short term high grade paper, a full on panic ensued.
Let’s look back to our risk matrix from the other day. A meltdown in the money markets is undoubtedly high risk, but what are the probabilities? We might look at the same canaries that fell off their perches last time round: LIBOR rate spikes, failure in auction rate preferred markets, etc. We should also be on the lookout for new signals. If it doesn’t look right and doesn’t make sense, there’s probably a reason.