Second Thoughts on Commercial Paper

[tongodeon]

I became a big fan of Planet Money during the recent financial crisis. I listened to their simplified version of things and then assumed I knew a lot about it, but lately ctd has been challenging my assumptionsA key point in the Meltdown narrative of September 2008 is the widely reported freezing of the commercial paper market. This American Life

Comments

[ctd]

Please share a couple of charts! I was going to make one, but I have no Excel-fu.

I should also walk back things from "conspiracy" and say - I think the selling of the plan came from an unfortunate alignment of interests, and the translation to "frozen" came from financial people trying to talk to journalists without using big words.

And, if there are catalysts and/or reagents that both t. and I are missing, I'm all ears.

[tongodeon]

I actually came across some charts that no less than the Federal Reserve of Atlanta made, showing even less of an apparent disturbance than what you and I were talking about.

[flwyd]

I think their most striking graph is the comparison of 1-4 day paper with 5+ day paper. In one week, the volume of the former doubled while the volume of the latter was halved. I'm not getting the charts I want from Google Spreadsheets, but here's the raw data for 2006 through today. I've been looking at numbers in the 9/10/2008-9/24/2008 range. It looks to me like the longer the term of the loan, the more dramatic the cutback. The markets weren't frozen in the sense that there were still transactions happening, but they were transactions with a lot less trust. I'll bet there were a lot of companies that wanted to issue paper for a term longer than four days, but were suddenly unable to find buyers.

So "frozen" may be a little hyperbolic, but water molecules still move in ice, just at a slower pace and less dynamic fashion.

[talldean]

Off topic, it seems reasonable to believe that some of the Apollo footage *is* a sound-stage; they needed more promo reels to justify that trip than it was possible to do well without a miracle. Or, Occam's Razor would say they probably faked a few of 'em.

[occlupanid]

Oh come now. Buzz Aldrin shaves with Occam's Razor every morning.

[tongodeon]

they needed more promo reels to justify that trip than it was possible to do well without a miracle

Huh?

[talldean]

If you spent a fortune getting to the moon, but the technology of the time didn't let you take good enough pictures to easily justify the trip, you fake better sets of pictures.

[enleve]

The slow-down of trading in commercial paper was not unprecedented. It happened in the early 1990s too. Maybe if you can find data from then it might shed some light on the issue?