naked capitalism

Although Asian markets opened up nicely on the Obama victory, Europe is focusing on credit market woes, and US futures are down at this hour. From Bloomberg:

Credit markets are still creaking even after the biggest decline on record in the rate banks say they charge each other to borrow dollars.

The London interbank offered rate, or Libor, for three- month loans fell to 2.71 percent yesterday, from 4.82 percent on Oct. 10. The rate is still 171 basis points more than the Federal Reserve’s target interest rate for overnight bank loans, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007.

“Banks are cutting back, the economy is in a deepening recession and in that environment, I don’t think banks are going to become a lot more willing to extend credit soon,” said Jan Hatzius, chief U.S. economist in New York at Goldman Sachs Group Inc., the world’s biggest securities firm.

Government bailouts totaling about $3 trillion, interest- rate cuts around the world and unprecedented cash injections by central banks drove Libor, the benchmark for $360 trillion of securities worldwide, lower in the past month without convincing financial institutions to lend. About 85 percent of U.S. banks tightened lending standards on loans to large and mid-size companies in the past three months, the Fed said on Nov. 3, the highest since the survey began in its current format in 1991.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said yesterday conditions remain “highly challenging.” Mike DiGiovanni, General Motors Corp.’s chief sales analyst, said a day earlier the scarcity of lending led to the automaker’s worst month since World War II. The U.S. economy, which contracted 0.3 percent in the third quarter, may stay in a slump through 2009, Fed Bank of Dallas President Richard Fisher said Nov. 3…

The difference between Libor and the overnight indexed swap rate, a measure former Fed Chairman Alan Greenspan uses to gauge the state of money markets, was at 210 basis points yesterday. That compares with 87 basis points on the last day before Lehman’s collapse and an average 11 basis points in the five years before the crisis started.

“We’re not out of the woods yet,” said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden- Wuerttemberg, Germany’s biggest state-owned lender. “Libor fixings are improving but it’s too early to say that this pattern is being replicated in the actual money markets.”…

“The Fed is trying to give Novocain to the markets,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. “It’s all about buying time.”…

Cash injections have had a limited impact because instead of lending the extra money received in auctions, some financial institutions are holding it on deposit with central banks. Banks lodged a record 280 billion euros ($355 billion) overnight with the ECB on Nov. 3. The daily average in the first eight months of the year was 427 million euros….

In its quarterly Senior Loan Officer Survey, the Fed said about 95 percent of U.S. banks raised the costs on credit lines to large firms, and “nearly all banks” increased the spread on borrowing rates over the cost of funds on loans to firms from July. About 70 percent of U.S. banks indicated they tightened standards on prime mortgage loans…

In another sign that lending remains restricted, corporate bond sales in Europe dropped in October to the lowest level this year, with 25.4 billion euros ($32.3 billion) of notes sold, compared with 35.9 billion euros in September, according to data compiled by Bloomberg. U.S. investment-grade offerings fell to $21.6 billion, the least since July 2002.

“No one wants to lend because they are still wary of values of bank balance sheets, and no one wants to borrow from the money market because they can borrow directly from the central banks,” said Alessandro Tentori, a fixed-income strategist at BNP Paribas SA in London. “In effect, the measures taken by central banks are not providing incentives to go into the interbank market.”