This week marks the third anniversary of the flare up of the financial crisis in August 2007. Howard Green, Headline anchor at the Business News Network in Canada, broadcast the news this way in today’s lead-in to an interview with me to mark the occasion: “It was exactly three years ago this week, August 2007, when the global financial system started experiencing chest pains as credit conditions tightened…It would still be a year and a bit before financial markets would go into cardiac arrest…Where are we now, three years after the onset of the crisis?”
The chart below shows how things looked back then; it's like a “money market EKG,” called LOIS3 (the spread between three-month LIBOR and OIS, the market’s expectation of the federal funds rate over the same three months). The last reading is on Friday, August 10, 2007 and is what you would have seen if you looked at your computer screen on Sunday August 12 and tried to figure out what would happen next. Yes, there’s obvious evidence of chest pains, perhaps even worse.