The U.S. government, along with governments around the world, have taken extraordinary steps to unfreeze the credit markets. The government has, among other actions, recapitalized 25 banks to the tune of roughly $158 billion, guaranteed all senior debt issued by banks over the next 3 years, and extended unlimited swap lines to several other central banks. The G7 countries also made it very clear that they won't allow another big bank to fail ("no more Lehmans"). Yet despite the historic government actions, the credit markets have barely budged. The Libor-OIS spread, which the Fed uses to measure the perception of risk in the credit markets, remains extremely high—it's currently 255 bps. While this is down from its high of 350 bps on October 9, in normal times the spread hovers around 20 bps, so 255 bps is still absurdly high. Credit default swap spreads (CDX) also remain extremely wide, with the IG 11 trading at 199 bps. Why have credit markets been responding so slowly? A good deal of the delayed reaction is attributable to, oddly enough, all the government actions. Since Lehman went under the Fed and the Treasury have been creating new programs at a dizzying speed. For example, we've had the Troubled Assets Relief Program (TARP), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), and the recapitalization plan. And, of course, who could forget the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (ABCPMMMFLF)! It takes a lot of time to work through the details of each program, determine who is eligible, weigh the costs and benefits of participating, assess the program's overall impact on the credit markets, etc. Most importantly, every financial institution has to adjust its risk models accordingly. This isn't a simple task, and in an environment where financial institutions are as risk-averse as I've ever seen, no one wants to start lending again until they're absolutely sure they understand the terms and ultimate impact of each new government program. The launch of the CPFF this week was a reassuring event for everyone. But every time a new story surfaces about a possible bailout for another industry (e.g., insurance companies, automakers) or another possible government program (e.g., the bailout for homeowners now being discussed), more uncertainty is injected into the credit markets. I'm not saying that the government shouldn't create new programs just because they'll cause temporary uncertainty and timidity in the credit markets—if a new program is truly necessary, then that kind of short-term pain should be worth it. I'm just saying that, based on what I've seen, a good deal of the delay in the improvement of the credit markets is due to financial institutions taking their time digesting each new government program.