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'All About the LIBOR'

LIBOR strife continues.

As you recall from reading here earlier, the heart of the current financial crisis is the freezing up of the credit markets.

Banks lend to one another -- or, rather, these days, they don't -- using the London Interbank Offered Rate (LIBOR). In recent weeks, the LIBOR has soared because banks don't trust each other.

Today, the LIBOR has been acting funny.

It dropped early in the day, making it look like the credit was starting to unfreeze, thanks to the "magic bullet" -- the Treasury's nationalization of U.S. banks announced before the markets opened today.

For the play-by-play for the rest of the day, we're going to turn it over to Art Cashin, UBS's colorful floor director at the New York Stock Exchange:

"In mid-morning, the LIBOR stopped going down and started going sideways, like the EKG on a Maine potato," Cashin said on CNBC moments ago. "People thought they had the magic bullet then they said, 'Holy smokes! It's not working, the LIBOR's still not going down!" And that's why we're seeing a choppy close."

The LIBOR has been rising toward the close.

Binky Chadha, Deutsche Bank's chief U.S. equities strategist, said the credit markets will be "pulled in two ways" in coming weeks.

On the one hand, the bank nationalization will help credit. On the other hand, the credit markets must now get back to dealing with an economy "that has been getting worse and is likely to get worse through the rest of the year," Chadha said.

-- Frank Ahrens

By Frank Ahrens  |  October 14, 2008; 3:55 PM ET
Categories:  The Ticker  
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Comments

This whole capital injection thing may still not work. The problem doesn't seem to be lack of money. It's lack of trust. There is money out there. How else will the US and Euro govts get the money for all this? They will borrow yes? Besides banks are not the only money lenders out there. Funds of all sort lend money, i.e., buy these bonds and papers. And if you look at the recent history of WS banks, they seemed to lend money mostly to people who gamble in the financial markets, in commodities, in leveraged buyouts, not to the "real" economy at large. So all this money going to WS banks may be misplaced.

We shall see in a few weeks. They have 450 billions left.

Posted by: Anonymous | October 14, 1908 4:17 PM | Report abuse

I'm concerned that our Republican administration has been ill prepared for this credit freeze. Now maybe I'm naive, but I'd think that someone there would run simulations of scenarios of asset bubbles or wars or disasters or mass hysteria resulting in credit markets freezing. But, it seems our Treasury Department has handled this like they have all thumbs. Now that we've been forced into the European model of buying into banks to inject liquidity, do we have enough to do this right? I mean, the Europeans are more than TRIPLING our outlay, and several of those countries have been through this before. The Republicans will suffer severely for their mismanagement of our economy, again nearly destroying capitalism with their ideological approach. The last time this happened, the Democrats controlled the Presidency for 20 years (1933-1953). This time, it could be longer. Even Herbert Hoover wasn't foolish enough to go to war in Iraq.

Posted by: Edward6 | October 14, 1908 4:19 PM | Report abuse

It is not London Interbank Overnight Rate. It is London Interbank Offer Rate!

Posted by: Ed | October 14, 1908 5:21 PM | Report abuse

Thanks, Ed. Fixed -- typing too fast.

--------

Posted by: Frank Ahrens | October 14, 1908 6:03 PM | Report abuse

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