Libor Benchmark Signals Credit Seizing Up as Banks Balk at Lending in Money Markets

[marmar]

Libor Signals Tighter Credit as Banks Balk at Lending (Update1)

By Liz Capo McCormick and Gavin Finch

Aug. 25 (Bloomberg) -- Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

``It's like an ongoing nightmare and no one is sure when we're going to wake up,'' said Thomson, a money manager in Glasgow at Resolution, which oversees $46 billion in bonds. ``Things are going to get worse before they get better.''

In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report that nations accounting for half of the world's economy face a recession.

The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.

``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.'' .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aa9qsN2KBb0Y&refer=home

[ColbertWatcher]

1. nevermind, my bad. n/t

[marmar]

2. Which word....I just copied it from Bloomberg?

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[ColbertWatcher]

3. My mistake. Sorry. n/t

[marmar]

4. Was it the "Libor" thing? .... I had to read the article twice to figure out what it meant.

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[ColbertWatcher]

5. Yeah, that was it. Sorry. n/t