IL-LIQUIDITY WATCH!
[Latest Global Dollar Liquidity Measure: +14.9% annual growth rate; latest Endogenous Liquidity Index: -36.0%]

- The always relevant Bank Credit Analyst warns that "this week’s bout of illiquidity in money markets is an important sign that subprime-related stress has crossed the line from being a sector-specific event, to a source of systemic risk".

- Jim Griffin, ING Investment advisor, does not worry too much about falling market liquidity: "The economic context is robust if not booming". The next big thing to worry about, however, is ... funding liquidity! "In fact", says Griffin, "those official reserves have become so great as perhaps to constitute the next new big thing when this credit spasm passes". I agree.

- Crossborder Capital, a.k.a Liquidity.com, has a report out on "The Subprime Credit Crunch and the New 'New' Yield Curve" (subscribers only).

- Check out the latest Fed money market operations at the New York Fed's website.

- Lou Crandall of RH Wrightson & Associates on yet another paradox of diversification: "The problem now is, everybody’s got a small piece, but those pieces are actually big enough to pull some players under, which means the fact that the risks are so diffuse in the system means everybody is a suspect, and that's the flip side of what we saw as the strength".

- PIMCO's Mark Kiesel outlines the firm's credit markets strategy: "One opportunity may be in the bank loan market, which has re-priced significantly, and specifically in the credit default swap market which references bank loans". Can credit spreads widen much more?

- The Economist mentions "indiscriminate selling ... in order to realise cash". See also the analysis of the turmoil in money markets: "Cash-rich banks will hoard their money if they fear that the inter-bank market will cease to function". Finally, the Buttonwood column delves into the paradoxes of "diversified" financial markets.