About that money under the mattress...

Via Bloomberg: "The London interbank offered rate for three-month dollar loans is dropping at the fastest pace since January." This is one positive indicator that credit is starting to flow again in financial markets. At the same time, Goldman Sachs announced that it would sell stock to facilitate repayment of $10 billion in TARP funds to the US government, ostensibly to avoid some of the more prickly (compensation-related) strings attached to the government funds. Goldman Sachs also posted a $1.66 billion profit in Q1.

Good news is welcome news, but two happy stories do not make a turnaround. The Goldman Sachs development may even be counterproductive if other banks rush to pay back their own TARP funds so as not to appear weak, in what would amount to a very public stress test. There is also a danger that Congress, already suffering from bailout fatigue, will become even less inclined to authorize more financial stabilization spending. That's worth keeping in mind, because not everyone is as optimistic as this.