In 2006 many big banks shortened the maturities of their debt and increased the size of the offerings. They thought they could borrow short term at cheap rates and invest in all those exciting packages of derivatives and sub prime mortgages. My pal Vince Farrell says this is now going to get very ugly.
Between now and the end of 2009, over $800 billion will have to be refinanced. That is a huge sum for any market to try to absorb but it will be a special challenge for this tight credit market.
How tight is the credit market? Last week American Express had to pay 7.34% to get a big debt offering sold. Even worse, the huge insurance firm AIG had to pay 8.25%.