Global Credit Still In Deep Freeze

Worldwide Interest Rate Cuts Have Yet To Revive Paralyzed Markets

(CBS/AP)  Governments around the world have slashed interest rates and ramped up their lending to unprecendented levels, but banks are still charging each other extremely high borrowing rates - a bad sign for the credit markets that remain close to paralysis.

Traders will be closely watching the G-7 finance ministers meeting this weekend, and hoping the officials will consider guaranteeing lending between banks - which could potentially bring down the relentlessly high key lending rate known as Libor.

In spite of bank bailouts and injections of capital amounting to billions of dollars by central banks around the world, CBS News correspondent Sheila MacVicar reported there is still no confidence in the market, and no confidence between banks.

"That means they are still not lending to each other. That's the grease that makes the global economy go around, and without that, the system remains stuck," MacVicar reported from London's financial district.

U.S. President George W. Bush noted that major Western economies were working together in an attempt to stabilize markets and end the spreading panic.

"Through these efforts, the world is sending an unmistakable signal. We're in this together and we'll come through this together," Mr. Bush said.

From Wall Street's perspective, the goal of the talks with world financial leaders, CBS News correspondent Anthony Mason said, is for a coordinated response that will calm the markets in time for Monday's trading.

The London Interbank Offered Rate, or Libor, for three-month dollar loans jumped to 4.82 percent from 4.75 percent on Thursday. Just a month ago, three-month Libor was at 2.82 percent.

Libor is the rate at which banks make unsecured loans to one another. Investors in the stock market, where heavy selling continued Friday, aren't going to get any relief until bank-to-bank lending comes down. Not only does it represent how unwilling banks are to part with their cash, but the rate is directly tied to many consumer loans, including adjustable-rate mortgages. If those rates rise, that will mean more mortgage defaults and foreclosures.

The difference between three-month Libor and the three-month T-bill yield swung to its widest level in more than 25 years - indicating that banks are viewing loans to other banks as significantly more risky than government debt. The yield on the three-month T-bill fell as low as 0.12 percent Friday before recovering to 0.28 percent, still down from 0.58 percent late Thursday.

Overnight Libor has pulled back, a sign that banks were a bit more willing Friday to make extremely short-term loans. Libor for overnight dollar loans dropped to 2.47 percent Friday from 5.09 percent Thursday. That rate been very volatile lately, however, and remains well above the target fed funds rate, which the Federal Reserve lowered on Wednesday to 1.5 percent from 2 percent.

The fed funds rate is the overnight rate at which banks lend funds that are held by the Federal Reserve to other banks; the Fed therefore has some control over it. Libor, on the other hand, is the average bank-to-bank lending rate on the wholesale market, and a better benchmark for global short-term interest rates.

In one positive sign, rates on commercial paper have been coming down from lofty levels, which is good for companies that rely on short-term financing from that market. Commercial paper is a type of debt that's either unsecured or backed by assets like mortgages; companies sell it to get funding for maintaining payrolls, buying inventory and other operations.

Most top issuers on Friday were selling commercial paper with one-to-seven day maturities at rates of less than 1 percent, according to Morgan Keegan fixed income analyst Kevin Giddis. Longer-term commercial paper rates were also largely lower. Commercial paper for 30 days from American Express Co., for example, slipped to about 2.75 percent Friday, he said, while 30-day paper from General Electric Co. slipped to about 2.5 percent.

"It could change in a moment's notice," Giddis said. "But between last night and today, the flows that we've seen, the tone is a little better."

On Thursday, the Fed said that commercial paper outstanding dropped for the fourth straight week in the week ended Wednesday. Commercial paper outstanding has fallen by 30 percent to a seasonally-adjusted $1.55 trillion since the summer of 2007. The Fed announced Tuesday that it will be buying commercial paper to keep that market more liquid.

Overall, though, investors and banks alike still appeared very nervous, flocking to Treasury bills as the stock market appeared to be headed for its eighth straight day of losses.

Longer-term Treasurys, however, fell. The 2-year note fell 4/32 to 100 25/32 and yielded 1.59 percent, up from 1.55 percent. The 10-year note fell 20/32 to 101 4/32 and yielded 3.86 percent, up from 3.76 percent. The 30-year bond fell 20/32 to 106 4/32 and yielded 4.14 percent, up from 4.09 percent.

Meanwhile, stock prices careened lower Friday in Asia and Europe and gyrated wildly in the United States, extending a stampede of selling that began on Wall Street a day earlier and deepening a global financial crisis that has defied all efforts to stop it.

On Wall Street, stocks prices swung sharply. The Dow Jones industrials fell nearly 700 points soon after trading began.

Asian markets followed Wall Street's cue, as key market gauges dropped 9.6 percent in Japan, 8 percent in India and 7.2 percent in Hong Kong. European stocks slumped by midday with key market barometers losing 7.3 percent in London, 7.7 percent in Germany and 7.5 percent in Paris.

A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and the rout in Australian markets caused traders to call it "Black Friday."

[inventagod2]

I hope the Banking Bu$h Buddies are not just holding the world hostage...

[checkthepast]

Who''s idea was it to lower banking standards?
Posted by Latrocinor

The democratic party''s idea! (through affirmative action mortgages) It was caught by Republicans and even Bill Clinton was on the GOP side on this one! Check the 2004 Congressional hearings on Fannie and Freddie...
http://www.youtube.com/watch?v=_MGT_cSi7Rs

[impeach__w]

The World Bank Group''s computer network %u2014 one of the largest repositories of sensitive data about the economies of every nation %u2014 has been raided repeatedly by outsiders for more than a year, FOX News has learned.

It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution''s highly-restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank''s network for nearly a month in June and July.

In total, at least six major intrusions %u2014 two of them using the same group of IP addresses originating from China %u2014 have been detected at the World Bank since the summer of 2007, with the most recent breach occurring just last month

[easeup-2009]

What was the rate of return for individial investors who "stayed with it" during the Great Depression?

Posted by Latrocinor at 12:21 PM : Oct 10, 2008

There will not be another crash like that. Back then, any schmuck off the street could make buys on margin--which is basically borrowing money to buy stock. People were buying lots of stocks with their own homes, cars, etc. as collateral. When the market starting coming down they panicked & tried to salvage what they could--driving the market down harder.

Margin calls are mostly NYMEX futures these days.

[easeup-2009]

Posted by executechcc at 01:11 PM : Oct 10, 2008

The economy has always been cyclical, and yes, you are a crazy conspiracy theorist.

[eXecuTech]

Buy low, sell high folks. This is EXACTLY what the globalist bankers & their bought-and-paid-for political pals wanted, and it''s happening EXACTLY the way they designed it: Fraudulent laws and policies, lies to the public (especially their customers), cover ups, bail outs, and markets tanking.

Now all the rich b*tches will buy up all the cheap stocks they created, they''ll manipulate them back up, again, and get even richer, again. Anybody older than 20 JUST went through this from 1988-92: A Bush was in office (Daddy-O). We were at war in the Middle East (Desert Storm anyone?). We were in a deep recession with outrageous prices, and hmmm...we were bailing out banks (S&L SCANDAL!!!).

Anybody with eyes could and should have seen this coming 8 years ago. I did and shouted from the rooftops (even ran for US Congress) but people just shot me down. Called me a "crazy conspiracy theorist." I may be crazy but there is NOTHING theoretical about this conspiracy. This has been happening in insidiously controlled cycles since 1913. Check the history! WAKE UP and GET READY TO FIGHT BACK! Read the Constitution and be prepared to defend it. We The People can NOT keep standing by and letting "them" steamroll us AGAIN!

[hypnotoad72]

First jobs, now the DOW. :(

[rose2443]

Why would anyone trust Pres. Bush, the "experts" or anyone linked to government or Wall St.? Greed has driven the market to this. Greed in Washington has set the trend for self-interest throughout the country at all levels. NOW they say "trust us". Are you kidding? Time to prosecute thieving CEO''s and clean up Washington. By the way, where was the FTC in all this?

[north1949]

The rich won''t lose much; Bill Gates is only down a couple percent in net worth, and Warren Buffett is coming out ahead. Once again, the rich will get much richer through the outright manipulation of the market. No wonder that the small investor, the one with stocks and mutuals in his 401(k) is being told to
hang in. McCain = 4 more years of the same.

[latrocinor-2009]

Posted by t2_bikerider

What was the rate of return for individial investors who "stayed with it" during the Great Depression?

[T2_Squared]

Be sure to trot out some experts that will tell you as an individual investor "Don''t Panic, stay in the market".

Meanwhile, watch all of them do exactly that.

[latrocinor-2009]

Fer sure we know trillions into "bad" housing loans to pay the little people on Main street and their sub contractors and workers. Sounds like Main Street got a big cut of it. Maybe a BIG BIG cut!

[latrocinor-2009]

Just where did all the money go? Anyone Reeeeeally know?

[latrocinor-2009]

Where did all the money go?

Did a CEO put it in his mattress?

Maybe into bad loans? Into bad loans to pay Main streets wages and Main streets houses?

[latrocinor-2009]

Anybody else feel like they were just bent over a log by Wall Street??
Posted by thgdriver1

Nope, not by Wall Street anyway.

Who''s idea was it to lower banking standards? Why did they call their opponents racist or mean spirited?

[thomopolous2]

posted by thgdriver1

More like a giant Kosher dog where the sun don''t shine!

[sumarongi1]

I still want to know when business schools started promoting short term loans from banks to allow you to meet monthly expenses????? I know situations sometimes arise when these loans might be a necessary evil, but it is not supposed to be an integral part of a business plan.

[latrocinor-2009]

LEAVE NOW !!! before you do any more damage to the nation and the world!
Posted by usadvisor101

Another BDS loser.

Who''''s idea was it to lower banking standards? Why did they call their opponents racist or mean spirited?

[thomopolous2]

The safegaurds are The windows don''t open anymore.

[latrocinor-2009]

Who''s idea was it to lower banking standards? Why did they call their opponents racist or mean spirited?