Eight months ago I wrote this post giving my analysis of the global financial crisis and the ensuing Wall Street meltdown. Well enough time has passed so I thought it was about time to review the critical metrics of the situation.

LIBOR - the London Interbank offered rate - is down to 0.8 % and has been declining steadily for the past month. This metric peaked at 4.8 % during October 2008 when the crisis was as its' worst as general fear around counter party risk hit the credit markets hard. After all, what bank wants to lend money to another bank if they suspect that bank might go out of business as Lehman Brothers did? The current rate of 0.8% indicates the cost of inter-bank borrowing has normalised thus indicating that the various government-induced stimulus packages and easing of policies has had a positive impact on the markets, and more importantly, confidence is returning to the market.

The TED Spread has dropped to its lowest level since August. Historically, it has been under 50 basis points during "normal" times. It is currently sitting around 70 basis points down from as peak of 550 basis points. If you recall, the higher the spread the greater the perceived credit risks (compared to "risk free" treasuries). Hence the size of this gap reflects a sort of risk or liquidity premium in the market. The recent lowering is another indication that confidence is returning to the market.

So what does all this mean? There will likely be many more months of depressed economic activity but the good news is the end of the world isn't going to bite us any day soon - the mother of all bail outs has certainly kept that dog at bay, for now!

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