Comments on: No Change in Libor After Central Bank Action http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html Sun, 22 Nov 2009 01:08:34 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Hubert http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2410 Hubert Fri, 14 Dec 2007 08:17:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2410 I have not thought this through, but the high LIBOR-FF Spread not be more the solution than the problem?<br/>Common thinking is that the suffering banks will get better by playing a steep yield curve as in the early 90ties.<br/>Now futures exchanges and derivatives guarantee that everybody can play this game - so it might not work like before.<br/>Take LIBOR on the other hand - it is only a small stream of funding for the banks currently, but a big stream in revenues. Some net interest margins ´have doubled in the last months...... I have not thought this through, but the high LIBOR-FF Spread not be more the solution than the problem?
Common thinking is that the suffering banks will get better by playing a steep yield curve as in the early 90ties.
Now futures exchanges and derivatives guarantee that everybody can play this game – so it might not work like before.
Take LIBOR on the other hand – it is only a small stream of funding for the banks currently, but a big stream in revenues. Some net interest margins ´have doubled in the last months……

]]> By: foesskewered http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2408 foesskewered Fri, 14 Dec 2007 03:03:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2408 LIBOR is a huge target not least 'cos of the "misgivings" banks have about each other , not to mention what they "think" of non-banks. I agree with anonymous about waiting to see the auctions. If the central banks have difficulty getting the credit to banks then non-banks can tell themselves to forget any christmas respite. <br/><br/>All that jazz about anonymity and no-stigma attached to auctions is pretty much bs , c'mon, it's not like banks in good shape are gonna want to be taking a loan for 28 days. Besides, as said in an earlier comment, rumours in this type of climate could prove more fatal than the truth, ahh, the merits of transparency. LIBOR is a huge target not least ‘cos of the “misgivings” banks have about each other , not to mention what they “think” of non-banks. I agree with anonymous about waiting to see the auctions. If the central banks have difficulty getting the credit to banks then non-banks can tell themselves to forget any christmas respite.

All that jazz about anonymity and no-stigma attached to auctions is pretty much bs , c’mon, it’s not like banks in good shape are gonna want to be taking a loan for 28 days. Besides, as said in an earlier comment, rumours in this type of climate could prove more fatal than the truth, ahh, the merits of transparency.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2406 Anonymous Thu, 13 Dec 2007 23:53:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2406 probably way off base but all this media talk about bank trust seems a bit surreal. Wasn't very long ago the key words were" world wide saving glut", now replaced with banks don't trust one another. Financial and MSM PR workers continue to pump out dribble for the vast media information outlets to ponder. <br/><br/>The RE bubble has popped in the US, the noise you hear happens to be collateral value hissing as it's value deflates. probably way off base but all this media talk about bank trust seems a bit surreal. Wasn’t very long ago the key words were” world wide saving glut”, now replaced with banks don’t trust one another. Financial and MSM PR workers continue to pump out dribble for the vast media information outlets to ponder.

The RE bubble has popped in the US, the noise you hear happens to be collateral value hissing as it’s value deflates.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2405 Anonymous Thu, 13 Dec 2007 23:44:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2405 Perhaps one issue is that the TAF is open only to "depository institutions". As <a HREF="http://www.rgemonitor.com/blog/roubini/232095" REL="nofollow">Nouriel Roubini points out</a>:<br/><br/><i>Fourth, the actions by the Fed today provide more liquidity to a greater variety of institutions but, as the Fed announced, these institutions are only “depository” institutions, i.e. only banks. The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.).</i><br/><br/>Could this turn out to be much like Paulson's Treasury plan (which was advertised as helping up to 2/3 of subprime borrowers but will probably apply to no more than 15% of them at most)? In other words, mostly psychological impact rather than a real effect... Perhaps one issue is that the TAF is open only to “depository institutions”. As Nouriel Roubini points out:

Fourth, the actions by the Fed today provide more liquidity to a greater variety of institutions but, as the Fed announced, these institutions are only “depository” institutions, i.e. only banks. The severe liquidity and credit problems affect today a financial market dominated by non-bank that do not have direct access to the liquidity support of the Fed; these include: broker dealers and investment banks that do not have a commercial bank arm; money market funds; hedge funds; mortgage lenders that do not take deposit; SIVs, conduits and other off-balance sheet special purpose vehicles; states and local governments funds (Florida, Orange County, etc.).

Could this turn out to be much like Paulson’s Treasury plan (which was advertised as helping up to 2/3 of subprime borrowers but will probably apply to no more than 15% of them at most)? In other words, mostly psychological impact rather than a real effect…

]]> By: Yves Smith http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2404 Yves Smith Thu, 13 Dec 2007 20:38:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2404 This was a coordinated action by five central banks. Although dollar Libor was a target due to the fact that the dollar swaps market is frozen, it is far from the only target. The objective was to reduce the spread between interbank rates and risk free rates, and the assumption (or better word might be hope) that addressing the year-end crunch would break the logjam.<br/><br/>Quotes from the latest Bloomberg update on the same story:<br/><br/><i>``The markets don't expect spreads to go down,'' said Alexander Titsch-Rivero, head of derivatives and structured products in Frankfurt at BHF-Bank AG, a German private bank. ``The actions by the central banks were just a placebo, a tranquilizer that doesn't solve the problem of the mistrust among banks on one hand and the potential for more losses in credit on the other.''....<br/><br/>The difference between the interest banks and the government pay for three-month loans, called the TED spread, rose to 2.21 percentage points yesterday from 1.59 percentage point on Sept. 18, when the Fed began lowering rates.<br/><br/>``It's a very disturbing sign,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``I'm alarmed by the impact this is having, which underscores that the funding difficulties out there are enormous.''</i> This was a coordinated action by five central banks. Although dollar Libor was a target due to the fact that the dollar swaps market is frozen, it is far from the only target. The objective was to reduce the spread between interbank rates and risk free rates, and the assumption (or better word might be hope) that addressing the year-end crunch would break the logjam.

Quotes from the latest Bloomberg update on the same story:

“The markets don’t expect spreads to go down,” said Alexander Titsch-Rivero, head of derivatives and structured products in Frankfurt at BHF-Bank AG, a German private bank. “The actions by the central banks were just a placebo, a tranquilizer that doesn’t solve the problem of the mistrust among banks on one hand and the potential for more losses in credit on the other.”….

The difference between the interest banks and the government pay for three-month loans, called the TED spread, rose to 2.21 percentage points yesterday from 1.59 percentage point on Sept. 18, when the Fed began lowering rates.

“It’s a very disturbing sign,” said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. “I’m alarmed by the impact this is having, which underscores that the funding difficulties out there are enormous.”

]]> By: Anonymous http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2403 Anonymous Thu, 13 Dec 2007 19:36:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2403 >> ``It's not going to help us find an exit to this crisis,'' <br/><br/> ``These measures aren't going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news.''....<br/><br/>>>> See junk collateral >> “It’s not going to help us find an exit to this crisis,”

“These measures aren’t going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news.”….

>>> See junk collateral

]]> By: Anonymous http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2402 Anonymous Thu, 13 Dec 2007 19:31:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2402 The real test will come when the auctions actually take place in a few days.<br/><br/>Actually, it will be interesting to watch the equity markets. They have been blithely chugging along, seemingly disconnected from the near-panic in the credit markets. A big shock and awe announcement from the Fed may, ironically, have the effect of making the average retail investor vaguely aware at last that Houston, we have a problem of some sort. Wile E. Coyote moment for stocks? The real test will come when the auctions actually take place in a few days.

Actually, it will be interesting to watch the equity markets. They have been blithely chugging along, seemingly disconnected from the near-panic in the credit markets. A big shock and awe announcement from the Fed may, ironically, have the effect of making the average retail investor vaguely aware at last that Houston, we have a problem of some sort. Wile E. Coyote moment for stocks?

]]> By: st http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2401 st Thu, 13 Dec 2007 18:53:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2401 1 mo US dollar Libor is down 7 bips today to 5.03 for a total of 17 bips in two days.<br/><br/>The ten bip inverted spread between 1 mo and 3 mo of last week has been reduced to 3 bps. I don't know what others were expecting, but I'd say this constitutes at least a measure of success. 1 mo US dollar Libor is down 7 bips today to 5.03 for a total of 17 bips in two days.

The ten bip inverted spread between 1 mo and 3 mo of last week has been reduced to 3 bps. I don’t know what others were expecting, but I’d say this constitutes at least a measure of success.

]]> By: ST http://www.nakedcapitalism.com/2007/12/no-change-in-liobr-after-central-bank.html#comment-2400 ST Thu, 13 Dec 2007 18:15:00 +0000 http://www.nakedcapitalism.com/2007/12/no-change-in-libor-after-central-bank-action/#comment-2400 Usually I agree with your analysis, but I don't think you called this one right.<br/><br/>A seven bip drop in 3 mo US dollar Libor is big -- and this is following on a 5 bip drop yesterday. (The news was leaked at 6am London time.) Of course, Libor is still at unprecedented highs, but the situation is improving.<br/><br/>Furthermore, what the CBs have targeted is 1 mo Libor, which dropped 10 bips yesterday. I don't have the data on 1 mo for today yet. Usually I agree with your analysis, but I don’t think you called this one right.

A seven bip drop in 3 mo US dollar Libor is big — and this is following on a 5 bip drop yesterday. (The news was leaked at 6am London time.) Of course, Libor is still at unprecedented highs, but the situation is improving.

Furthermore, what the CBs have targeted is 1 mo Libor, which dropped 10 bips yesterday. I don’t have the data on 1 mo for today yet.

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