If this is over anyone's heads, please post a comment requiring explanation, and I will be happy to respond in detail.

Maybe some of you have seen that inter-bank borrowing rates are going up, at a rate that is at least as fast as the rate the fed is declining.  So by the way, Bernanke's efforts at directly addressing the credit crunch is not having much effect.  One could argue it would be worse if he did not do something, but that is not my position.  I believe the market has a very firm opinin on proper pricing of risk, and is not interested in Bernanke's views. 

With that back drop in mind, a look at the credit default swap market is highly instructive.  These instruments are derivatives, where someone is "swapping" the risk of default with someone else for a fee.  It is a way to transfer credit risk to someone else.  The way these are price measured, is by the number of basis points charged over a certain risk-free rate.  This "spread" is what one referrs to, when talking about the cost of risk for a given entity. 

So what are the spreads for the banks these days?  The large US banks are around 80 basis points.  Buffett is around 70, as well as Fannie Mae and Freddie Mac.  European banks are around 100 basis points.  All of them have been rising rather rapidly.  Asian banks, with the exception of Japanese banks, are seeing a parabolic increase in spreads.  Yikes! 

Riskier debt is seeing a spread explosion, rising to as much as 1000 basis points. 

About a year ago, 100 basis points over spread was roughly considered BBB level risk.  So in short, risk is being aggressively repriced, which means almost everyone is seeing much higher cost for funds. 

We are NOT out of the woods yet, when it comes to the credit crunch.  And in fact, for riskier borrowers it is getting much, much worse. 

I suppose this is obvious, but junk bonds are not a good place to be now, and I think those have a ways further to fall.  Let the knife hit the floor.  Better to chip the formica than have it  through your palm!