After financial turbulence in 2007 and credit spreads leaping upward illustrated the need for greater liquidity facilities at the Federal Reserve Bank, TAF (Term Auction Facility) was introduced to alleviate the tightness occuring in the credit market. The Ted spread, which sounds like it belongs in a discussion about Betty Crocker or the Food Network, gave us a picture of how drastic things were. The Lehman bankruptcy in 2008 saw the spread responding by jumping even higher, making the early bounces look like a trip to Six Flags.

So now that spreads are down from some of those stratospheric levels, what can we attribute that too? In some part, a recent paper by a Fed econonomist explains that their policies did have a measurable effect. If you follow Libor (London Interbank Offered Rate) or are interested in the functioning of the credit market, this is a short read by economists standards. Click here to enjoy!