Finally The Fed Admits: Contained = Contagion

On Friday, the Fed finally did an about face and openly admitted what the entire world had already figured and priced into the global securities markets by suggesting that the "subprime" crisis was not simply relegated to one basket of securities, but rather - it is part of a larger problem growing out of the aggressive lending policies surrounding the boom in the real estate markets over the last half-decade.

As investors scramble to assess just how far this contagion will "spread", typically-savvy fixed-income brainiacs are dumping securities across the board and driving up prices (and down yields) on the only surely safe thing left in the market - US T-Bills: Treasury Bill Yields Fall Most Since 1987 on Money Fund Demand

While this confirms that the Fed finally has it right in suggesting that the problem stemming out of subprime credit and the CDO's and other related securities funding them, it also suggests that the Fed action on last Friday did not address, and perhaps can not address, the shaken confidence of investors who are stuck holding instruments that: 1) are worth less than they thought and 2) have liquidity risk and other difficult to calculate exposures that make them almost impossible to value appropriately in a market like this one.

The always clear and coherent bond guru, Bill Gross, explains in this article that the difficulties were caused primarily by creating complex and opaque instruments that are now finally being undressed. And it isn't a pretty sight:
Tough love on Wall Street
As lenders hunt for bad loans, Pimco founder and Fortune columnist Bill Gross says the Street is learning hard lessons about disclosure.