I obviously do not know (and as Cramer points out Academics don't know things like this), but did have a few people contact me about it and there is some evidence that things are getting bad, but not Armageddon bad as Cramer claimed).
But here are some articles that suggest things are at least getting a tad dry (as in opposite of liquid).
NY Times DealBook:
"Just a few weeks ago, selling the debt used to fund leveraged buyouts was a piece of cake. Now, it borders on the impossible. As a result, many of the investment banks that agreed to finance these deals are on the hook to make the loans themselves — at least until buyers and sellers can settle on a price and the debt can be resold.Interesting factoid: Goldman is holding over $71 Billion of this debt, Bear less than $20 B.
One more? Ok. On CNBC Bill "Please don't call me Eeyore" Gross who manages PIMCO's Total Return bond fund gives his view that the lack of liquidity could have a severe negative impact on the economy.
"He points to the static U.S. household survey of employment and July auto sales figures as "indicative of prior periods preceding recessions.""But as of yet the sky is not falling (or shaking as Gross called it an 8.o on the Richter Scale!).
For instance, while the banks have large positions (although relatively small as a total percentage of firm value), the articles only partially suggest that these investment bankers are not without their defenses. For instance, they are almost assuredly hedging this exposure. How? One way is with a relatively new credit index. From Forbes:
"The leveraged loan market is not the only sector of the fixed-income market where the investment banks shrewdly created an index that would help them hedge against one of their most profitable but risky businesses--the issuance of asset-backed securities like the mortgage bonds used to finance the subprime housing market.In early 2006 a small number of firms ...formed the ABX index (a credit default swap of asset-backed mortgages) of 30 most liquid mortgage-backed bonds. The savviest players like Deutsche Bank (which reportedly made $250 million) and several hedge funds on both sides of the Atlantic began shorting that ABX index in early 2006 at par. It now sells at 35, implying that the value of those mortgage-backed bonds and others of their ilk have lost 65% of their value, a potential loss in the tens of billions of dollars."Moreover, today we got good news as the primary market still functioned very well as there were several large issues that went off without a hitch. From TheStreet.
"..10-issue high-grade bond calendar is a test of the market on many levels. First, 10 issues in one day is about as much as the syndicate desks and portfolio managers can handle, says one manager. He says the deals thus far are going relatively well.."President Bush added his view that there was enough liquidity:
"President George Bush said that despite fear of a credit crunch, the US financial system is resilient enough to withstand recent volatility in the financial markets.
'There is a lot of liquidity in our system,' Bush said in a group interview with financial reporters after meeting with his top economic advisers at the Treasury Department.
And finally, investors got their two cents in and drove up equities (for instance Bear is up about 20% in just over 2 days!) from a low near 100 to an intra day high of over $120.