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Commercial Paper Tanks


Credit is only available at good rates to corporations that don't need it. Those who need a credit lifeline are struggling to get it.


Bloomberg is reporting Commercial Paper Has Biggest Weekly Drop Since 2000.

Outstanding U.S. commercial paper fell 4.23 percent, the biggest weekly drop in almost seven years, as investors fled asset-backed debt and opted for the safety of Treasuries. Commercial paper outstanding has fallen by $181.3 billion in two weeks. The most recent decline is the biggest by percentage since at least November 2000, according to data compiled by Bloomberg.

"The shrinkage of the commercial paper market will force companies to obtain money elsewhere" [said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.], "Some will be unable to obtain funding and will shut or scale back their operations."

"There is a significant amount of cash in the system, it's just not getting to the parts of the market that need it," Conrad DeQuadros, a senior economist at Bear Stearns Cos., said in an interview today in New York.

Once again Bear Stearns (BSC) gets it wrong. There is not a "a significant amount of cash" anywhere. In fact, there is a mad scramble for cash as a Mad Dash For Cash and Sudden Demand For Cash both show.

DeQuadros is confusing cash with credit and by association credit with either liquidity or value. Professor Succo gave a timely warning about the latter in Don't Confuse Risk Taking With Value. Mr. Practical was right on time with Credit Crunch Not Going Away.

With the above in mind, let's change the statement made by DeQuadros so that it's accurate. This will take quite some doing. Here goes:

"Demand for cash has been rising fast but here is little cash to be found. The huge drop in commercial paper and the emergency funding of Countrywide (CFC) by Bank of America (BAC) are examples of what happens when there is insufficient cash. Yes, there is credit available but at prices no one really wants to pay. Credit is only available at good rates to corporations that don't need it. Those who need a credit lifeline are struggling to get it. That's what happens in a credit crunch. If you need credit no one wants to extend it to you, but if you don't the Fed is begging you to take some".

This is why Bernanke's Bluff, as depicted in Bernanke's 16 Gun Salute, is doomed to fail.

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