TED Spread said "I tried to warn you!"

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Have you ever heard of the TED spread? No, it's nothing pornographic or a reference to one of Congressman Barney Frank's special friends. In the futures trading arena, you monitor the difference between the interest rate on US Treasuries contracts (T-bills) and the London Inter Bank Offered Rate (LIBOR). This gives you an idea of how risky credit is in the general economy. T-bills are the risk-free standard while LIBOR relates to the credit risk of lending to commercial banks. The difference between the two rates is known as the TED spread (T-bills + EuroDollar futures contract). The greater the difference, the greater the belief that bank loans have become a riskier undertaking.

The TED spread had historically fluctuated between 0.1% and 0.5%. In 2007, it jumped to almost 2%. Last week while Congressman Frank reported that they had no warning about the impending financial meltdown, TED skyrocketed over 3.5%. Apparently, Mr. Frank forgot his participation in 2003 and 2004 congressional hearings on impending crisis situations with Fannie Mae and the banking industry. His take back then? "Crisis, there's no crisis" as he fought Republican attempts to impose more regulations on Fannie Mae.

Anyway, as I promised, the TED spread is nothing pornographic. The obscenity lies with those politicians who purposely ignore or, worse yet, seek profit from misfortune that falls on the rest of us.