From Naked Capitalism, commenting on a NYT report that companies are having trouble getting short term funding:

Now although this all sounds dramatic, is unambiguously not good, and probably has corporate treasurers plenty anxious, consider:

1. There is no indication that companies are facing a cash shortfall due to the inability to borrow, but that they have had to scramble and pay more and that is disconcerting

2. Even at one percentage point more than last year, short term money is still not very expensive.

I am NOT saying we can go very long with a seized up commercial paper market. The dislocations will grow. These worries about funding probably are leading companies to hold off on discretionary spending. That alone has ramifications.

However, I am beginning to wonder if the markets have gotten into an accidental game of chicken.

Why borrow and lend to your fellow banks if you can get plenty of cheap funding from your friendly central bank? As FT Alphaville said earlier today:
Liquidity is being thrown at the system, but it’s just making things worse.

By pumping in more money central banks aren’t addressing the fundamental concerns of the banks at all. Going cold turkey is a very unpleasant thing, but the solution isn’t more drugs, even if they alleviate short term pain.

In assuming they can rely on central bank money market operations - which will be expanded (as is the case) when the going gets tough - banks are naturally avoiding lending to each other.

Now consider the bailout version of this problem. Yes, the market for bad bank assets wasn't so hot, but the big reason is not lack of buyers, but unwillingness of banks to accept the lousy realistic prices on offer.

But the government is now moving towards a plan to buy that paper for something closer, maybe a heck of a lot closer, to your price. You now have no incentive to try to unload those assets, so what little trading there was in them has probably gone into a deep freeze.

Even though Mr. Market will win in the long run, I would not bet against banks getting some form of bill passed by Tuesday. To paraphrase James Carville , if you are the bond market, you can intimidate everybody.

The only part I question is the assertion that this game of chicken is accidental. And, of course, the banks can sleep a little more soundly knowing that in every game of chicken, the Democrats in Congress always blink first.