In particular, it is very instructive to look at the readings on parameters such as (i) TED Spread (3M LIBOR – 3M Treasury Bill), (ii) 3M LIBOR – 3M OIS, (iii) 3M LIBOR – Effective Fed Funds Rate, (iv) VIX Index and (v) CDX Crossover index. Pre-crisis, these were at historically low levels.
In the extreme, as Ed Clark observed, “Bank leaders created cultures around a simple principle: if it’s legal and others are doing it, we should do it too if it makes money.