A look at the recent turmoil

Since the end of November, the liquidity in interbank markets in United States, Euro area, Japan and United Kingdom has dried up. Specifically, we can look at the 1 month LIBOR across the markets, which supposedly close to the policy rate, traded a premium over the policy rate. Additionaly, the TED spreads, the premium of LIBOR over the risk-free treasury rate have seen never which have not been seen since 1987. Both suggest that the capital flight to the relative safe instruments rather than seeking to park into the generally believed safe heaven -- interbank market.
The phenomena across different continents purpose that the spillover of credit risk (no longer a mere subprime problem) has a larger scale than Aug's one. Further shrink in the outstanding of asset-backed commercial paper have dropped to USD 801.2 bn by more than 32% from the all time high in July. It is a bank run in the shadow banking in US.
We have seen the similar situation happening across the Atlantic with queues lining up outside Northern Rock to take back the deposits. The Bank of England has shored up the faltering bank by injecting capital and guarantees that it is safe to place your money over there. While in US, we still see no bailout with public fund of this shadow market but a proposed Super SIV fund orchestrated by US Treasury of States, Paulson, to inject liquidity back into this area using funds from Bank of America, Citigroup and JP Morgan Chase(with Blackrock as the manager of the fund). Finally, if it is an illiquid issue, it will be a very profitable deal for the Wallstreet guys. But if it is an insolvent issue, it will be a lingering downward adjustment process for the US.