They are not now close. Not at all. The TED spread is 413 or thereabouts right now. Traditionally, the number was 40 or so.
The credit crunch is caused by the refusal of banks worldwide to lend to each other, except at astronomical interest rates. That means -- eventually -- that nice things like student loans and home loans will soon become impossibly expensive. Example:
The spread charts and financial acronyms mean real pain for people like Maureen McNally of Trenton, Florida. The monthly payments on her Libor-linked mortgage from Countrywide Financial Corp. have climbed to $769 from about $500.Even after the bailout was approved, LIBOR continues to rise and rise -- and the stock market goes down and down, because you can't have an economy without credit. The market will soon plunge to half of its value a year ago. And what then? If mortgages toss homeowners with decent jobs out on the street, the crisis will turn into Ragnarok.
The conspiracy fun begins with this question: Who sets LIBOR?
According to lambert, nobody really knows. LIBOR was created by Thatcher-era deregulation. The Corrente piece draws from this Bloomberg analysis:
While the estimates that go into Libor used to be based on actual transactions between banks, they have become little more than guesswork since credit markets froze, according to three people with knowledge of how interbank rates are set.So the world lives and dies by that number, and no-one knows how that number is set. A handful of people have the power to destroy the world economy. What will replace it? God knows.
At this point, you really don't need me to fill in the rest of the conspiracy theory, because you can do the job on your own if you have any imagination. Yes, it's a theory that (potentially) makes London bankers into bad guys. Won't Lyndon LaRouche be pleased?
Incidentally: Why is this dollar rate being set in London?
The concept of a centralized dollar rate set outside the U.S. emerged in the 1970s when the Soviet Union and Arab oil producers invested export revenue in London to prevent it from being confiscated by U.S. authorities...As Johnny Carson used to say: I did not know that.
9 comments:
To me, one of the most astounding elements of the financial crisis was one I first encountered during the oil/gasoline price explosion earlier this year - nobody seems to fully understand the market mechanics that are involved. I remember reading a NYT article specifically about this phenomena in April? May? of this year, it's general point being analysts inside the industry disagreed as to the cause of the incredible price spike we were experiencing. It was only compounded by reading contradictory explanations from all and sundry, voiced with pitch-perfect (ideologically-influeced) conviction as to what was causing it. Speculators? Peak Oil? Lack of refineries? The wilting value of the dollar? Choose the culprit that best suits your needs. Likely, all of these factors to some extent played into things, psychologically if not rationally. Yet every appointed expert seemed to contradict the other. I am also a big fan of Krugman, and he's been a valuable guide in navigating the stormy seas of our current financial snafu, and at least he expressed a noticable level of uncertainty in what was causing the oil/gas price spike. His lack of certainty to me indicates a level of intellectual honesty too often lacking in the world of punditry.
Again we seem to be in a situation where nobody, even those most logically expected, seems to have a firm grasp on what exactly is happening or WILL happen. The case in point to the post-at-hand - I am not familiar enough with the LIBOR rate to offer any disagreement with your synopsis, but my understanding, dating back to the late-Clinton years, was that the Fed set the (overnight?) inter-bank interest rate, and such was it's exaggerated power. I remember reading articles explaining that Alan Greenspan wasn't a genius, or the man who single-handedly weilded God-like power over the US economy - all he could essentially control was the inter-bank interest rate. Here Joe explains that the LIBOR rate, which among other things control the interest rate of 'loans between banks' - and, according to Lambert, currently operate on guesswork. There seems a clear contradiction. Someone, anyone, can feel free to enlighten me, but the central fact remains that while we're undergoing a wrenching economic crisis which is the focus of an enormous amount of media coverage and intellectual analysis, there seems to be no consensus on what exactly is happening, much less what we should expect to see in the future.
You shouldn't trust US citizens or the US government to establish monetary standards. When the last catastrophe hit in the 1970s, the US retail and consumer sector refused to convert its weights and measures to the metric system. The US is the least literate society in the developed world. Face it kid, this ain't your night, and it's also Groundhog Day.
But piano lessons will still be heard. The economy still has its excellent, self-defense infrastructure. Satellites still orbit, Interstate highways don't close, soil doesn't stop working. Cash will regain some of the faith and credit it used to represent.
Will your ISP continue to connect you? Will automatic bank drafts and deposits continue? Will people cut back their cable service? Will people pay their cable bills? Their cell phone bills? Will those services disconnect for non-payment? Lotsa bubbles no one noticed, paying tons of billions for so-called 'airtime'. Two Polar bears are sitting in a tub, one says 'Pass the soap,' the other says, 'No soap, radio.'
Dimitri
What i don't get is that LIBOR is set by the BBA, and while the headlines say the banks are being held hostage by LIBOR, but how can that be??
As LIBOR is actually BBS and therefor set by; Abbey National, ABC International Bank, ABN AMRO Bank NV, Adam & Company plc, Ahli United Bank (UK) Ltd (formerly The United Bank of Kuwait plc), Alliance & Leicester plc, Allied Irish Bank, Alpha Bank London Ltd. AMC Bank Ltd {Part of the Lloyds TSB Bank plc Group}, American Express Bank Ltd, Anglo Irish Bank Corporation plc, Anglo-Romanian Bank Ltd, Ansbacher & Co Ltd, Arab Bank plc, Arab National Bank, Arbuthnot Banking Group plc, Australia & New Zealand Banking Group Ltd, Banca di RomaSpA, Banca Monte Dei Paschi di Siena SpA, Banco Bilbao Vizcaya Argentaria SA, Banco de Sabadell SA, Banco do Brasil SA, Banco Santander Central Hispano SA, Banco Santander Totta SA, Bangkok Bank Public Company Lt, Bank Leumi, Bank of America Securities Ltd, Bank of Baroda, Bank of Ceylon, Bank of China, Bank of Cyprus UK, Bank of India, Bank of Ireland, , Bank of Montreal, Bank of Scotland, Bank Saderat plc, Bank Sepah International plc, Bankers Trust International plc {I LOVE WHEN THEY USE THAT WORD}, Banque Banorabe, Barclays Bank plc, BNP Paribas, Bradford & Bingley plc, British Arab Commercial Bank Ltd, Brown Shipley & Co Ltd, BSI AG, Butterfield Bank (UK) Ltd, C Hoare & Co (THERES LOTS OF HOARES ACTUALLY), CA Premier Banking Ltd, CAF Bank Ltd, Agricole Indosuez and Credit Lyonnais), Canadian Imperial Bank of Commerce, Canara Bank, Capital Bank plc, Capital One Bank (Europe) plc, Cater Allen Ltd, Cheltenham & Gloucester plc, Citibank International plc, Clydesdale Bank plc, Commerzbank AG, Commonwealth Bank of Australia, Coutts & Co, Credit Industriel et Commercial, Credit Suisse, Crown Agents Bank, Daiwa Securities Trust & Banking (Europe) plc, Danske Bank A/S, Deutsche Bank AG, Dexia Banque Internationale à Luxembourg SA, Direct Line Financial Services Ltd {Part of The Royal Bank of Scotland plc Group}, Dunbar Bank plc, Duncan Lawrie Ltd, EFG Private Bank Ltd, Egg Banking plc, Emirates Bank International, European Islamic Investment Bank plc, FBN Bank (UK) Ltd, Fleet National Bank, Fortis Bank SA/NV, Ghana International Bank plc, Gulf International Bank BSC. Habib Allied International Bank plc, Halifax plc, Hampshire Trust plc, Harrods Bank Ltd,Havin Bank Ltd (formerly Havana International Bank Ltd),HBOS Treasury Services, HFC Bank plc (NOW THEY'RE REALLY ONE TO SET RATES), HSBC Bank plc, ICICI Bank UK plc, ING Bank, Islamic Bank of Britain, Jordan International Bank, JP Morgan Chase Bank N.A., JP Morgan Europe Ltd {Part of the JPMorgan Chase Bank Group}, Julian Hodge Bank Ltd, Lloyds TSB Bank plc, Malayan Banking Berhad, Matlock Bank Ltd (THROW HIM SOME GUM A NAIL FILE AND SOME PAPER CLIPS, MAYBE MATLOCK CAN GET US OT OF THIS MESS), MBNA Europe Bank Ltd, Mitsubishi UFJ Trust (AH MORE TRUST!), Mizrahi Tefahot Bank Ltd, Mizuho International plc {Part of the Mizuho Corporate Bank Group}, Moscow Narodny Bank Ltd, N M Rothschild & Sons Ltd, Natexis Banques Populaires, National Australia Bank Ltd, National Bank of Abu Dhabi, National Bank of Canada, National Bank of Egypt (UK) Ltd, National Bank of Greece SA, National Bank of Kuwait, National Westminster Bank plc, Persia International Bank PLC, Philippine National Bank, Qatar National Bank SAQ, Royal Bank of Canada, Sainsbury's Bank plc, Scotiabank Europe plc {Part of The Bank of Nova Scotia Group}, Scottish Widows Bank plc, , Shanghai Commercial Bank Ltd, Société Générale, Standard Life Bank Ltd, Sumitomo Mitsui Banking Corporation Europe Ltd, The Bank of New York, The Bank of Tokyo - Mitsubishi Ltd, The Northern Trust Company, United National Bank Ltd (formerly Pakistan International Bank (UK) Ltd), Wachovia Bank NA, Weatherbys Bank Ltd. Woolwich plc (Now part of Barclays Bank plc}, and Zions Bank International Ltd
So how can it be that the banks are holding the banks hostage? That doesn't make sense... But I am starting to wonder if this isn't somehow a way to make a one-world currency, that is after everything falls completely appart.....
Everyone, meet Yip -- the guy who wrote the lyrics to the songs in "The Wizard of Oz."
Dimmi, the joke you tried to tell involves penguins, not polar bears. Your version simply makes no sense.
on another topic, have you attended a McCain / Palin rally recently where they chant "Obama is a Terrorist ! Traitor ! Terrorist!" with the vigor of a lynching party ?
I can't wait for them to start chanting "hang him ! hang him !"... scary stuff.
But I understand it's not like you would cover this kind of stuff, hating Obama and his supporters is a full time job for you that requires all your focus.
McCain now has to beg his supporters to be respectful and not to sound like Nazi at a rally...
http://www.youtube.com/watch?v=7hKn1SO7upY&feature=user
Yes, Yipsel wrote Ding Dong, and We're Off to See the Wizard, and as you can see a few comments up, he wrote the famous "It's only a Paper Moon" ...of course the more relevant of Yip's tunes, perhaps, was "Brother, Can You Spare $10,878,550,205.10?"
The US Postal service made a stamp with his picture on it, and McCarthy got him blacklisted...
H-man, I let your comment through in order to do my small bit to combat this meme.
"on another topic, have you attended a McCain / Palin rally recently where they chant "Obama is a Terrorist ! Traitor ! Terrorist!" with the vigor of a lynching party ?"
No, but I've been on the receiving end of death threats from Obots. I've seen Keith Olbermann call for Hillary's murder. Kos has printed death threats against Hillary. Plenty of others, as I have documented, have been threatened by you disgusting Obot monsters.
Not a day goes by when I do not receive the most scabrous insults, threats, and paranoid accusations from the disgusting bots.
And you dare -- YOU FUCKING DARE -- accuse the McCain people of acting like beasts?
ARE YOU FUCKING KIDDING ME?
I've documented it at length. The Obama campaign is THE WORST IN AMERICAN HISTORY. The most bestial. The most thuggish. The least civilized. The most redolent of the brownshirts.
Do I think Obama is a terrorist? No, I think he is a crook. He's guilty of the exact same criminality that Duke Cunningham committed -- and if Obama's skin were white, you know damn well that you would admit that the guy is a crook and a chronic liar.
((you let my first two comments in; so it would be a little two faced to not let this one in, Sir))
"I've documented it at length. The Obama campaign is THE WORST IN AMERICAN HISTORY."
It's hardly empirical Joe-- to begin with it's arguable that nothing really compares to the speechwriting of Asa Carter as THE WORST and I bet if you were as vocal against Wallace in the south back then, you'd probably have ended up a "strange fruit." Much more violent.
More to the point, there's the numbers things-- while I'm not saying that Obamam shouldn't have stopped it, or at last said something about it. Nor am i saying that he is angelic-- I will say that 500K readers a day at Kos and 500K readers at huf leaves ample room for a handful of cretins to post comments. Again, not washing the blood off the cheeto's hands [for selectively editing out opinions], but you can imagine that even with 0.1% of posters being vile and violent, there will be ample room for material for your documentation. There's no excuse for Keith, but does that represent the other 99.9%? really?
And while the threats you receive are inexcusable, and often criminal, they too, do not represent the harmonic mean, ANOVA, nor Spearman's rho...
If I used anecdotal evidence with you--- as I have in our private email correspondences with regard to tools for healing sciatica and other ailments-- would you give it any more credence? I'm just saying that in the words of Reagan you're throwing the bathwater out with the baby. And as bad as Obi is, as big a crook, as many ties to creeps and people who ought to have their citizenship revoked, as many lobbiests and pay-pals--- none of the arguments presented to date leave me to believe that McSame & Pain are any better. In fact, there's still much to show that they are worse.
And for the record, since I know Hyperman well, in real life. I can tell you this truism; he is no Obot, he is a "healthy skeptic" and does his research. Nowhere did he say that Obi was good or true, he never has--- even though you have called him an Obot several time.... He will never vote for Obama, it wouldn't even be fair to bet on it, but I'd bet my landlord's house on it. You can not let 90% of his comments through, but you must admit they are never violent or threatening, and he, like me, has noticed a slight turn towards myopia, and he , like me, misses the old Cannonfire....
[Vote Green!]
This is one of the few areas you discuss I know something about. I cant help but think you are baiting me when you write of "London bankers".
Sorry, I know I am giving myself way too much credit.
Actually (addressing one of the comments) people do understand what is happening. Almost every London money market trader understands what is happening.
Lets talk about Libor. It is the rate for unsecured offshore money. Unsecured is the key word. Banks post and borrow money in libor. Swaps are indexed off it. It is set by demand and supply for such offshore unsecured funds.
Other rates influence it, but indirectly because secured money is not the same as unsecured. The fed lends secured money. It may soften the security it requires, accepting shitty mortgage bonds as a way of supporting banks which are about to fail, but it still requires security.
Now consider what happens when a bunch of banks lose a bunch of money. They are now under-capitalised. They have to fiddle their accounts to appear to have sufficient capital - btw have you ever noticed how write downs = new capital injections? Ask yourself which came first.
This bank is vulnerable to a sudden loss of confidence. Much of their balance sheet is financed by borrowing short term funds. A year ago now, the CP (commercial paper) markets shut down. Mainly cos of CDO losses. Much of these losses were carried by foreigners. German Landesbanks for example so public sector foreigners in this case.
Once this market was gone there was a huge deficit in the availability of funds to the banking system as a whole. In effect they have been using these foreign held dollars (and pounds and euros) which had built up cos of the long term trade deficit, to squeeze an extra return out of their equity. The CP markets failure forced these assets back on their books. They were meant to be held off the books in special purpose vehicles, but in fact there were agreements (see enron) which meant that these SPVs had to be taken back onto the books (to protect investors) in the event of a failure to place CP.
In retrospect, this was the big silly. What point is it taking risks off a balance sheet if they are not really off the balance sheet? It bumps up your return on equity but keeps the risk the same. I guess you could say it gooses the stock options.
The US banks ran to the Fed for leverage to replace the lost leverage. Hence all those letters. A bit like that sinner man song, this failed in the end cos acceptable leverage levels have been dropping like a stone. Once you see one highly leveraged bank collapse (Bear) you don't need another example (leh) to persuade a bank treasury committee to get liquid and to get capital, and de-lever the sheet. And besides, the CP market was big, and the Fed is little compared. I mean really big and really little. So geez, what do you expect?
So banks with very large losses (citi) and limited access to deposits, (all foreign banks who borrowed dollars and all investment banks (latter group now extinct) in the US are on death row. One might argue they only pretend to be solvent and the authorities only pretend to not know.
Did London make this happen? No, we just did the paper work. And charged fees.
Does London control the fate of the US money markets. No, the people who provide the funds control the fate. That would be the big balance of payments surplus countries, and the big long term savers. So Japan, China, Greater China, and the oil producers.
Geo-political shift in power? Could be. Im thinking MAD. You dont wanna lend, then we will take our financial infrastructure home with us and you can live in whats left of the world. Surely you guys can work something out with the Chinese?
Do let me know if this helped, and Im happy to answer questions. I dont pretend to have all the answers, but I will try.
Harry
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