Custom Search

Wednesday, September 24, 2008

Libor, Fed Funds, Money Markets: It's All Broken

“We've seen quite a bit of upward pressure in the past couple of weeks and the fact that the TAF came in at over 50 basis points above yesterday's one-month Libor will no doubt add to that. It's a bit of a lottery as to where Libor will set.” -Barry Moran, money-market trader

Libor spikes again. Bloomberg chart here

Money-Market Rate Climbs as Bank Funding Constraints Worsen: “The cost of borrowing in dollars increased after banks paid a record premium for cash at yesterday's Federal Reserve auction, underscoring the shortage of funds available on money markets.

The one-month London interbank offered rate, or Libor, for dollars rose 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said today. Financial institutions paid 3.75 percent at the 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.

Demand for central bank loans backed by collateral surged this week as financial institutions hoard cash and balk at lending to each other on concern more banks will fail. Libor loans aren't secured and typically command rates above those of secured loans of similar maturities.

Demand for euros at today's European Central Bank auction of three-month loans was the strongest on record. The ECB allotted 50 billion euros ($73.3 billion) at a marginal rate of 4.98 percent. That's the highest since 2000. Banks bid for 155 billion euros.

As borrowing seized up last week following the collapse of Lehman Brothers Holdings Inc. and the U.S. government's takeover of insurer American International Group Inc., the overnight rate for dollars doubled to 6.44 percent, on Sept. 16.

The cost of borrowing in euros for one month rose today to the highest level since December, according to the European Banking Federation. The euro interbank offered rate, or Euribor, climbed 6 basis points to 4.91 percent. The one-week rate climbed 4 basis points to 4.74 percent, the highest level since May 2001.”

On Monday, September 15th in the post Losing Control? Fed Funds Climb to 6%, I wrote:

“Why equities aren’t in a death spiral is beyond me. My guess is they will be soon enough…”

Sure enough, equities did go into a swan dive…

On Tuesday, September 16th in the post Fed Definitely Losing Control. Fed Funds Hits 6%, I wrote:

“The markets now face the very real possibility of a disorderly liquidation. (That’s just a fancy way of saying MELTDOWN.)”

This is what has Paulson and Bernanke so spooked. This is why they’re so eager to pump $700 billion into the market. This is why they’re desperately trying to gain control of the entire financial system in the greatest power grab in history.

I last mentioned LIBOR in LIBOR Perks Up Again
I also mentioned the TED Spread then in TED Spread, Sneaking Back Up.

Since then, LIBOR has become completely unhinged.

Like I said on April 14th in The TED Spread, LIBOR and EURIBOR = Scary Bad:

“Aberration? Nah. Not bloody likely. This is probably foreshadowing the great fun Bears are likely to have in the very near future at the expense of the Bulls…

The BEST idea the Powers That Be are shopping around is another great debt circle jerk. They’re seriously considering having the US Treasury, which is already running a massive deficit that requires in excess of $2 billion dollars from abroad daily to finance government expenditures, sell MORE debt. The brilliant plan is then to park that debt with the Fed, so the Fed can swap it out for GARBAGE. Brilliant. Wicked brilliant.”

I was having so much fun as a Bear, they had to change the rules. (Bears are NOT allowed to out-fun the Bulltards. I'm pretty sure this one of the Ten Commandments.)

“You are having waaay too much fun. No more short selling for you. Time out for you. Go sit on the thinking chair.” -Christopher Cox, Chairman of the SEC (Stupid Equity Clowns)*
*Not an actual quote. But this is what I heard (in my head) when the short selling ban was put into effect.


Doug said...

Why dont they take that 700 billion and form a new bank, one with strict financial oversight, that can make the safe loans that all these bad banks are not making?

Im talking about the money that needs to be lent in order for small and large businesses to operate, and for people with good credit to buy homes and cars.

Then they could let the bad banks fail, and the new bank could buy up any remaining good assets at discount.

Ben Bittrolff said...


That would make waaay too much sense and be waaay to practical and ACTUALLY solve the problem.

It would even be efficient.

But it wouldn't give random politicians any power at all and no money to play with.

So it's clearly an idea that would never be considered.

Anonymous said...

Why not buy wachovia or wamu and use it as the foundation of the nationalize champion with a five year term with option for another 5 years fbefore privatization. This way you get all the systems and infrastructure. Then just use it to swallow deposits.

Anonymous said...

My impression is that we can easily deal with banks (shown by numerous crises, including Sweden and not so successful in Japan) such as wachovia, Wamu... But how do you deal with all these investments "banks" that dramatically exceeded the 12-to-1 leverage rules.

Anonymous said...

Why doesn't FASB (and SEC) force firms to inform investors what'son their book?

Anonymous said...

Ben, does that mean you're not heavily short any more? Expect a bounce first? Sounds like this thing's going through one way or another, is it enough to keep the fit from hitting the shan in the short term?

Ben Bittrolff said...


Still short... just a little less. Taking some profits from the 'disgusting super spike'.

I'm ALWAYS net short something.

We aren't even in a recession yet. I don't care how high we bounce, I can afford to hold.

We are going to deflate like you wouldn't believe...


replica rolex said...

$75 Replica Rolex Watches sale, Our site provides Rolex replica, replica Rolex Watches, replica breitling, replica Cartier, replica Omega, Tag Heuer Watches. . .more than 100 famous rolex brands"
rolex air king
rolex datejust
rolex day date
rolex daytona
rolex gmt
rolex submariner
rolex yachtmaster
a lange sohne watches
alain silberstein watches
bell ross watches
breguet watches
breitling watches
bvlgari watches
cartier watches
omega watches
patek philippe watches

Unknown said...

nice post!!
We do kinds of casual clothing wholesale online, welcome to visit!!
winter clothing
winter jackets
winter clothes
ski jackets
north face sale
discount north face jackets
north face coats
men's down jackets
cotton polo shirts
polo shirts
cheap polo shirts
ralph lauren polo shirts
discount polo shirts
polo shirts wholesale
columbia jackets
the north face jackets
columbia sportswear jackets

Unknown said...

The haversack of a lv"
. As for louis vuitton
, the designers acquire their own casting value, even for their Louis vuitton bags
. louis vuitton handbags
is so constant and acquire able adeptness for water-proof and fire-proof.

Unknown said...

For professional women, it is an investment. This is very quintessential because it is quite simple but looks very good in the corporate world. All this can fit in just one package.
Coach handbags noticed how appealing the Coach Legacy are for corporate women that they came up with another one that women can use. They introduced the Coach Madison . Along with Coach Poppy , it gives the corporate woman the simple yet professional and fashionable look that they need.

When you hear Chanel handbags being mentioned anywhere, the concept of high fashion comes to mind. When you attend a social function, you will realize that most women are carrying handbags designed by replica Chanel handbags . These accessories can also be carried to the office. The Chanel handbag carriers and purses are not just mere fashion accessories. Chanel can come in handy when you do not have space to put your personal things.

Anonymous said...

Get someone trustworthy cheap panadora to travel to your pandora jewery home often to pandora jewerelly maneuver the curtains, water your pandora jewlerry plants and pandora charms and beads do no matter pandora charms yard work needs pandora charms uk to be done. It's unlikely that your trustworthy friend can have pandora charms sale a home-wrecking party as forever happens in the movies. Offer a contact range to a neighbour or friend. This pandora charms 2010 is often for emergencies only.

ремонт кухни said...

It can't succeed in fact, that's what I believe.