Legal Commentary

Here's a WSJ blog post with more on the state of credit markets, and the limited relevance of stock markets (which as off this writing are still up a good bit) for understanding the current crisis. Emphasis in the original.

September 30, 2008, 11:09 am Overnight-Lending Markets Still Flashing Red Posted by Editor Min Zeng and Mark Gongloff report.

If you only watch the stock market, where the Dow was recently up more than 250 points, you might get the mistaken impression all is well with the world on the Tuesday after the latest Black Monday.

But, as has often been the case during this crisis, credit markets are singing a different tune. Overnight dollar Libor rates more than doubled to 6.875%, as banks hoarded cash for the quarter end amid signs the financial crisis was spreading. It?s more than a little ironic that while investors are buying banks? stocks ? shares were up sharply across the sector ? banks themselves were unwilling to buy each others? shortest term debt. Banks are so desperate for funds that they paid 11% for $30 billion in overnight funds from the European Central Bank, up from 3% just Monday....

In short, credit is frozen, in part because institutions are hoarding liquidity for the end of the quarter....

And it isn?t just Wall Street. The commercial paper market, where companies raise short-term financing, also felt the pressure of tightening conditions. One trader at a primary dealer said volumes are holding up around Monday?s levels, but overnight rates on asset-backed commercial paper jumped to 6% to 7.5% from 2% for better-rated companies on Monday. It isn?t helping that today is the last day of the third quarter, bringing banks? efforts to get their books in order to a head.