Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Silent who wrote (10309)	10/17/2008 9:34:12 AM
From: Hawkmoon	Respond to of 33421

It seems to be the case that the national central bankers have distorted LIBOR by making it an unnecesary index. That MIGHT be the case were the Fed injecting liquidity into the banks at an interest rate HIGHER than LIBOR, but that's not the case. The TED spread is rising to new highs because, DESPITE the cheap money filling the coffers of banks from CBs, indicating hoarding of cash and unwillingness to trust one another. Too much supply (available cash) and reduced demand SHOULD result in a lowering of the LIBOR and the TED spread, but it's not. This indicates that building up war chests and restoring capital bases is paramount over lending to fellow banking institutions who might just wind up going BK and dissolution. I found it interesting that the Treasury forced all of those banks to borrow money (in the form of preferred stock) at the rate of 5%, which presumably should motivate those banks to lend it out at even higher rates or negative returns. And that penalty will climb to 9% if they haven't derived sufficient profit from that money to pay it back within 5 years. Over all, I'm not sure I support the author's contentions. Cheap money from the Fed should result in lowering LIBOR rates. So something else is clearly at work, and I suspect it's due to uncertainty over the solvency of many non-US banks, many of which are even more "geared" than were those 5 US investment banks. Deutche Bank, UBS, Barclays, and HSBC are a few examples of such banks, several of which have leverage approaching 60:1. But I'm certainly open to other interpretations. Hawk