OK, so I am not really a finance guy, so I may be missing something. But you seem to have pointed out only that there is a pretty amazing inversion of the LIBOR yield curve, which becomes even more notable when you compare it to the (now fairly steep) US Treasuries curve.

Also, although it is clear that the press accounts were confusing, it was at least hinted that the huge overnight rate had led to essentially the evaporation of overnight interbank lending even thought there had been a rate for such lending set.

Also, I will note in passing that although mortgage rates in the DC area can be as low as 6 percent in the area, those rates are for *conforming* mortgages, while real estate prices are still high enough that you pretty much do not see conforming loans in some places. Also, it is now much, much tougher to get the loan in the first place, and housing sales numbers are reflecting this trend, too.

So I think you are right that the press is not painting a clear picture of what is going wrong in the financial markets these days, but I don't think it's reasonable to say that because the press has screwed up that there's not an important story here.

The problem isn't the absolute level of LIBOR, which tends to track changes in Fed interest rate policy rather closely. (In September 1989, the overnight Fed Funds rate was around 8.25-9.5%: http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html) The problem is that LIBOR is so high even when Fed rates are so low, because it indicates that banks are charging each other a sizable premium as insurance against default. Remember, banks can borrow at the Fed Funds rate and make loans at the LIBOR rate. The NYT is wrong about high LIBOR being a problem by itself, but if they were looking at the LIBOR-OIS spread (approximately the difference between secured and unsecured loans between banks), they'd be right.

If banks don't have enough money to lend then why can't they attract more deposits by offering higher interest rates? When I bought my house mortgage rates were about 8%. That wasn't the end of the world. Mortgage rates are low. Someone with good credit and a good downpayment will not have trouble getting a loan so I don't believe the "freezing up" line. Now if you have bad credit or don't have a downpayment or are up to your ears in debt then yes, you probably can't get a mortgage. But isn't that healthy both for the bank and the borrower?

The claims that the sky will fall unless taxpayers bail out Wall St. simply don't add up.

Now get this, it is reported that Goldman Sachs, one of the banks being bailed out with taxpayer money is going to buy $50 BILLION dollars of distressed bank assets. Taxpayers are bailing GS out and yet GS is going on a $50 BILLION dollar shopping spree? How can you both have $50 billion dollars to spend yet no money to lend? Now if there is a bailout will GS be able to turn around and sell the distressed assets to the taxpayers for a handsome profit? If so, we've been had (again).

http://www.marketwatch.com/news/story/goldman-sachs-seeks-buy-50/story.aspx?guid=%7B80B1C1EA%2D64C2%2D4D2E%2D8F35%2DA146F962EF3F%7D

All of this makes me sick, sick, sick. What democracy? This is corporatism. This is fascism.

anonymous said:

> The problem is that LIBOR is so high even when Fed rates are so low

Could the problem be that Fed rates are TOO low? I mean, 2% won't let you keep up with inflation. It seems that if the market were able to set interest rates, instead of the Fed dictating them, that interest rates would be higher.

Wasn't one of the causes of this bubble that the Greenspan Fed kept rates too low for too long? My point being there seems to be an attempt by the Feds to keep interest rates artificially low.

> It seems that if the market were able to set interest rates, instead of the Fed dictating them, that interest rates would be higher.
...
> My point being there seems to be an attempt by the Feds to keep interest rates artificially low.

The Fed controls the money supply, which is how it's able to control interest rates. The Fed does not "dictate" interest rates, it merely changes the money supply so that market interest rates change. "If the market were able to set interest rates" doesn't make sense in this context, because the supply curve IS the Fed.

Sheesh -- why aren't you elbowing your way onto the Rachel Maddow show? You're the first person I have heard in the past week and a half that makes any sense when talking about the roots of, and BS surrounding, this economic "crisis," and associated supposedly-necessary bailout, handed to us tax-payers by the outgoing Bush Administration. (I heard you on the panel at IPS via C-SPAN tonight).

Thanks!
Dave Viens

Political class seems to think that the reason bailout bill was defeated because it was named wrongly and the media didn't do a good job selling to the public.

So instead of leading the local news with shooting, they led with how the credit is effecting the local people. So the propaganda is going to be on full blast.

Speaking of LIBOR. What if this just reflect the real inflation rate.
Isn't the rate undercounted and underreported.

Should interest rate reflect the inflation rate or not.

I agree that the propoganda machine is out in full force selling the bailout this time at the local level and scaring innocent souls into the buy-in. Its amazing how the elites have taken over the freedom of independent thinking of common people and reduced them into scared sheeps.

The scenario unfolding here seems eerily familiar: Bush Administration representatives have suddenly taken to describing a situation as dire, and they claim to be proscribing the only possible answer (the bailout). Furthermore, they warn us, if Congress doesn't act to pass their proposal within a matter of days, the world will end! (Great Depression Redux).

Now simply substitute "invade Iraq" for "the bailout" and "a nuclear/chemically armed Iraq" for "Great Depression", and you realize this is the EXACT same way they manipulated Congress and the mindless drones in the media to support the Iraq War authorization.

No major economist I have heard from over the past week believes there is a chance in hell of a Great Depression or anything like it. To a man, they all have come out against the bailout.

This is just one more Bush manipulation scam, utilizing baseless scare tactics as a part of their overall strategy to force their bailout of corrupt, incompetent, and greedy banks on the American people. How can so many Democrats (Pelosi, Dodd, Obama!) be so dumb as to fall for the same exact con twice?

Propaganda indeed. And since the folks watching are the same ones who fell for the crappy home flipping shows and the "Once in a lifetime preconstruction deals!!", they will walk right into it.

I am really starting to believe that the housing bubble was tolerated not only because it was extremely lucrative for some, but also because it was the only way to keep the economy afloat while spending over a trillion on foreign wars.
It's the only way to explain the government's "What housing bubble are you talking about??" attitude. Until it was too late.

I know of two business owners who ran out and took care of their lines of credit because of a rumor that banks were going to shut off lines of credit. Neither had a problem.

Just recently one of my credit card companies sent me a letter saying they were raising my credit limit to some absurdly high level and another sent me an email asking me to transfer my balances for 0% interest.

So I think so far, the banks are still lending.

I wonder if the interbank lending "freeze" is now just in anticipation of the bailout and all the planning that must be going on to make sure they can offload their worst assets at the highest price.

I have been looking at historical interest rates in considerable detail, and Dean is right - the current situation is unusual and bears close watching, but not completely unprecedented.

In the first phase of the crisis, late 2007 to mid 2008, there was a flight to short-mid-term Treasuries and those rates dropped, but not to historical lows. Then they snapped back to above historical trends until the latest round of financial failures - I suspect they will do so again. As Treasury rates drop and other rates rise, pressure will mount for the herd to stampede back in the other direction. Stock prices have been doing this back-and-forth stampede on a daily basis. (Though it should also be noted that this kind of volatility is characteristic of the beginning of a big crash.)

Inter-bank rates, including Federal Funds, are actually highly variable on a daily-weekly basis. If banks need the money they will borrow it, whatever the rate. 10% sounds high, but doesn't amount to that much overnight.

Erik L wrote, I wonder if the interbank lending "freeze" is now just in anticipation of the bailout and all the planning that must be going on to make sure they can offload their worst assets at the highest price.

That's plausible.

"If banks don't have enough money to lend then why can't they attract more deposits by offering higher interest rates?"

That's exactly what I thought. I am getting less than inflation on my Money Market account. How can banks afford to borrow at rates lower than inflation if they have a liquidity problem? I guess the banks simply don't need to pay realistic interest rates if they can get the money for free out of taxpayers pockets.

It's funny how the markets are always right, and they will always fix themselves, and government intervention is wlays bad, except when government intervention is it is more profitable for the fat cat.

It's funny how the markets are always right, and they will always fix themselves, and government intervention is always bad, except when government intervention is more profitable for the fat cat.

Just wrote both of my state's U.S. Senators...

"Vote NO on this bailout bill, Senator. Here's what I had to say about this bailout in a blog post I made last night:

"Might the frenzy surrounding the bailout be a reflection of the degree to which private finance can effectively blackmail the public, having built up a Ponzi scheme of such incredible proportions it has almost become a laughing game to threaten the pyramid's collapse, while control over the commercial banking system is consolidated, the public is extorted and the Treasury is further looted?"

Surprise! American journalism is a lie.

The Virginia Medical College announced a breakthrough in cancer research on 19 August 1975, but no major paper picked up the story because they didn't like the cure. Turned out is was marijuana, so the cowardly newspapers didn't report it.

Now almost 35 years later the guy writing this article realized the papers are liars.

If Wall Street needs money ....

Politicians and political parties should return all campaign contributions received from Wall Street, hedge funds, banks, and their trade organizations since Jan 2007.

This should be a no-brainer. Pols that don't return the money won't get my vote or my money.

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The employees at Trading Forex Review.Com believe that Fox news is nothing but a mouthpiece for the right wing establishment and has no business what so ever calling itself a news organization. I don't believe a single one of there reporters ever took a journalism class where neutrality was discussed as well as simple reporting what happened and letting the public decide for itself the conclusion it takes from the story.

Why can't they attract more deposits by offering higher interest rates? When I bought my house mortgage rates were about 8%. That wasn't the end of the world. Mortgage rates are low. Someone with good credit and a good downpayment will not have trouble getting a loan so I don't believe the "freezing up" line. Now if you have bad credit or don't have a downpayment or are up to your ears in debt then yes, you probably can't get a mortgage.

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