The equity markets are rebounding this morning (Dow +248, SPX +32, Nasdaq Comp +45), which is a positive sign of stabilization, with hope that Congress will eventually pass some form of a bailout plan following yesterday's rout.
However, the bigger story today is taking place in the credit markets, which are not showing the same signs of stabilization. Virtually every measure of liquidity is showing extremely tight credit conditions demonstrating the credit seizure taking place.
For example, LIBOR, which is the interest rate at which banks lend to one another, rose sharply with overnight LIBOR rising the most in history -- up to 6.88% from yesterday's high of 3.388%. And although it has since come off those levels, it means banks will lend but they have to pay twice what they did yesterday.
The Fed Funds rate, the rate at which U.S. banks lend to other depository institutions through the Fed, rose to 7% this morning, more than 3x the 2% target rate set by the Fed. The fed funds rate has since pulled back from those highs to ~6% after the Fed added $20 bln to the system via a 28-day repurchase operation.
Finally the TED spread, which is the difference between 3-month Treasury bills and 3-month Eurodollars (which is essentially the futures market for Libor) is at 3.5347, slightly down from yesterday, but still an extremely historically high elevated level... All this shows that banks are conserving cash now more than ever and are not comfortable lending in this environment.