libor-paulie, toro or david

[wimpy77]

i was looking at the credit spreads, especially the libor. question for paulie and toro. do you typically want to see the libor going up or down?

 

[DavidS]

Libor rate, if I'm not mistaken is the interest rate that banks charge each other when they lend money to each other.

The higher the libor rate, the higher the interest rate. When things were really bad back in October, the libor rate sky rocketed because banks wouldn't lend to each other. Back in October the 3 month LIBOR rate was around 5%. Today it's around 1.1%.

The problem with this is banks are still not lending to each other. That's what the original bailout was supposed to help with. Banks are too skiddish and will continue to be skiddish until the economy recovers.

 

[Toro]

What matter isn't LIBOR. It is the TED spread, which is the difference between LIBOR and treasury rates. You want to see the TED spread fall because it tells us that fear is coming out of the system as banks are trusting each other more.

 

[DavidS]

What matter isn't LIBOR. It is the TED spread, which is the difference between LIBOR and treasury rates. You want to see the TED spread fall because it tells us that fear is coming out of the system as banks are trusting each other more.

What I don't understand is that the credit markets are still frozen and the LIBOR and TED are both pre-Lehman bankruptcy levels. How is this possible?

 

[Toro]

What matter isn't LIBOR. It is the TED spread, which is the difference between LIBOR and treasury rates. You want to see the TED spread fall because it tells us that fear is coming out of the system as banks are trusting each other more.

What I don't understand is that the credit markets are still frozen and the LIBOR and TED are both pre-Lehman bankruptcy levels. How is this possible?

Its possible because banks trust each other more than they did. Confidence is coming back into the system.

It is still high, though. The TED spread is about 1%. In normal times, it is 0.2%-0.3%.

 

[Indiana Oracle]

Banks not lending --
My analysis shows that the banks know more bad news is coming to their balance sheets (see post on PPIP) and they are reluctant to be adventerous until that is behind them (will take a year or more). They also want to accumulate cash and offload TARP.

 

[wimpy77]

Banks not lending --
My analysis shows that the banks know more bad news is coming to their balance sheets (see post on PPIP) and they are reluctant to be adventerous until that is behind them (will take a year or more). They also want to accumulate cash and offload TARP.

yep seems that way. they have a few more quarters before the write offs are done. but, the treasury said that banks can only pay back tarp of regulators sign off. this is how i was told it was gonna go. the regulators were basically gonna hold a gun to the banks heads and tell them that they were only going to pay it back if they participated in ppip. this is coming from a friend of mine that works at a bank. even though they didn't receive any tarp money.

i do believe the government is gonna force some of the these banks to participate whether they like it or not. either by threatening or outright getting rid of people.

 

[Zoomie1980]

Banks not lending --
My analysis shows that the banks know more bad news is coming to their balance sheets (see post on PPIP) and they are reluctant to be adventerous until that is behind them (will take a year or more). They also want to accumulate cash and offload TARP.

Offloading TARP is now the focus. Problem is now, there is some sign the Feds are going to make it difficult for banks to offload. Talk about wanting to keep hold of their dictatorial power.....

 

[Indiana Oracle]

Banks not lending --
My analysis shows that the banks know more bad news is coming to their balance sheets (see post on PPIP) and they are reluctant to be adventerous until that is behind them (will take a year or more). They also want to accumulate cash and offload TARP.

yep seems that way. they have a few more quarters before the write offs are done. but, the treasury said that banks can only pay back tarp of regulators sign off. this is how i was told it was gonna go. the regulators were basically gonna hold a gun to the banks heads and tell them that they were only going to pay it back if they participated in ppip. this is coming from a friend of mine that works at a bank. even though they didn't receive any tarp money.

i do believe the government is gonna force some of the these banks to participate whether they like it or not. either by threatening or outright getting rid of people.

We are in that zone right now I'm afraid. The wall street firms and big banks did themselves in.

 

[wimpy77]

after yesterday's new about how paulson forced bac to aquire meryill lynch it will be interesting to see how long ken lewis keeps his job. i was watching cnbc a bit yesterday after the story broke. i was suprised that a few guys actually defended paulson saying they didn't blame him for what he did, but lewis should have told his shareholders.

 

[Indiana Oracle]

after yesterday's new about how paulson forced bac to aquire meryill lynch it will be interesting to see how long ken lewis keeps his job. i was watching cnbc a bit yesterday after the story broke. i was suprised that a few guys actually defended paulson saying they didn't blame him for what he did, but lewis should have told his shareholders.

Yep. See other post on this