Friday, 26 September 2008

Credit crunch - it has never been worse

Yesterday, 3-month interbank spreads hit 134 basis points. Prior to the credit crunch, that number was usually around 12 basis points. The spread is at an all time high.

The credit crunch has never been more acute than it is tonight. The sterling interbank market appears to have collapsed. Banks are hoarding cash, and they are unwilling to lend to each other without collateral.

Those huge waves of central bank credit, the special liquidity scheme, and the rate cuts; none of it has worked. It has all failed. The financial system is close to meltdown.

How did things get so bad?


dearieme said...

I can see why Paulson and Bernanke are so rattled. Pity they came up with such a dud scheme.

Anonymous said...

And I take it everyone agrees the credit market leads the equity market these days.


mitch said...

And our glorious leader continues to blame everyone else.

Rick said...

The economist Wilhelm Ropke warns in one of his books from the 1930s, that a crisis of bank solvency can manifest itself as a liquidity crisis. He warns that pumping more liquidity into the system will have little effect other than delaying - or even making worse - the inevitable recession.

Here we are making exactly the same mistakes that we made in the past and still expecting them to work. Can you imagine this happening in any other arena? Aeronautical engineers perhaps puzzling over why the 20th aircraft with the same design flaws as the others crashed like the others - "next time we need even more fuel says one!"

Alice Cook said...

Good point rick


electro-kevin said...

Boris Johnson describes banking as an 'industry'.

I think that alone says a lot about how things became so bad, Alice.

Mark Wadsworth said...

I dunno.

These 'inter-bank spreads', are they high in cholesterol or low in cholesterol? The public should be told!

USpace said...

It’s a shame politicians forced banks starting back in the 80s to give home mortgages to poor people who weren’t credit worthy enough. Then, they just started lending mortgages way beyond many people's credit abilities. That’s where all this mess started. And also that they didn’t regulate Fannie Mae and Freddie Mac like they do other banks.

Alan Greenspan should be exposed for the problems he helped cause by allowing credit quality to be ignored.
Scary, will sanity ever prevail?
if money were free
it would have no value
- extreme inflation

ignore credit scores
give everyone homes
- like musical chairs

to deny a mortgage
must be due to racism

absurd thought -
God of the Universe says
forgive all debts

settle all accounts
no one owes anything

absurd thought -
God of the Universe says
make housing costs look cheap

go paint a rosy picture
just get people to sign up

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