Interest rates on 30-day commercial paper. A2/P2 is the rating given by credit agencies to the least prime -- but still above junk -- paper:
The chart is adapted from a recent presentation by University of Chicago's John Cochrane where he says that the death of the securitized lending system, aka the shadow banking system, may be a good thing:
Many investors thought they were getting 50 basis points at no risk, whereas in fact what they were holding was securitized debt and there was risk. It would be much better not to pretend that there's magic alpha.
The fact that neither TARP nor the Fed's unspoken quantitative easing policy have done anything to reduce borrowing costs for much of the private sector, that fed funds is close to zero, and that demand for loans has dipped all suggest we're far from the end of the current downturn, and why the Fed decided to go full-force into reducing mortgage rates.