If you want a measure of:
A. How broken the credit markets are, or;
B. How totally fucked we are,
The fact that credit default swaps for 10-year protection on U.S. government debt have jumped to 56 points is a good candidate. Which one is really at work here, A or B is anyone's guess.
"There is a lot more money to be spent and it is not clear how it is going to be financed," said Tim Brunne, a Munich-based credit strategist at UniCredit SpA. "Credit spreads don't reflect expectation of default, just the uncertainty over the enormous cost to the government." [emphasis ours]
Yeah, we don't get that quote either.
The Fed's new plan to kick-start markets for loans to students, car buyers, credit-card borrowers and small businesses means it will be taking on credit risk by buying debt. The central bank pledged to purchase as much as $500 billion in mortgage-backed securities as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world's two largest mortgage buyers, and Federal Home Loan Banks.
Treasury Credit Swaps Soar to Record on New $800 Billion Pledge [Bloomberg via Alea]