Congress haggling…

September 24, 2008

The US Congress continues to haggle with the administration on what to add or subtract from the rescue plan. They seem to be in a rather strange complacent mood, but if they don’t do something soon, their pleasant stupor may be ended by another large bankruptcy. Quotes are from Bloomberg:


“There’s no real term funding markets except for central banks,” said Meyrick Chapman, at UBS AG. “The Libor is meaningless. It’s for unsecured lending and there is no unsecured lending as far as I can see.”


“We’re seeing the financial system being restructured before our eyes,” said Peter Hahn, a London-based research fellow at Cass Business School and a former managing director at Citigroup Inc. “We really have to accept the fact that the central banks are replacing the entire interbank market.”


I wrote weeks ago that the year end period would be very chaotic this year, and the early hoarding that is going on shows the difficulties in short term funding.  the Libor-OIS spread widened 31 basis points to 166 basis points today, the highest level since at least December 2001.


In Europe, The ECB allotted 50 billion euros at its three month auction at a marginal rate of 4.98 percent, highest since 2000. Bids were for 155 billion euros.


In the US, banks paid 3.75 percent at yesterday’s 28-day Fed term auction facility, or TAF. That’s 57 basis points more than yesterday’s one-month rate, the widest spread since the TAF program began in December.


There does appear to be an ominous air in the financial markets. The situation of short term funding is very worrying.


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