Is the worst behind us in the credit crunch ?

[Mango]

Shelly and Goofer-I heard on CNN this morning that irregardless of what the US Fed does to interest rates it might not do much for domestic credit as a substantial factor in our banking is somehow tied to an interest rate that is established in London (it sounded similar to the US prime rate). Could you please expand and explain in layman's terms?

Libor is short for the London InterBank Offered Rate, the interest rate offered for U.S. dollar deposits by a group of large London banks. Historically, it runs parallel to our short term Treasuries. (Graph comparisons)

You may have heard more about it today; excerpt from Bloomberg

Libor Jumps
Yields on two-year notes also rose as the rate to borrow dollars in the London interbank market surged the most since August in response to a threat by the British Bankers' Association to ban members that deliberately understate borrowing costs.
Citigroup, the biggest U.S. bank by assets, reported a first-quarter net loss of $5.11 billion, less than analysts' most pessimistic estimates. Revenue fell 48 percent to $13.2 billion, compared with the $11.1 billion average estimate in a Bloomberg survey. The Standard & Poor's 500 Index gained a fourth straight day, by 1.8 percent.
The cost of borrowing in dollars for three months rose to the highest since March 11. The Libor rate for dollars climbed 9 basis points to 2.91 percent, the BBA said today. The two-day climb of 17 basis points is the biggest since August.
The drop in two-year notes ``is related to the issue with Libor, and it's forcing down the short end of the curve,'' said Theodore Ake, head of U.S. Treasury trading at Mizuho Securities USA Inc. in New York. ``People are really worried about the implications of the Libor mess; unlike the previous times when they didn't know what to do and bought two-year notes, this time they're selling two-year notes and trying to get into cash.''

 

[Matt J]

In the event of global econominc melt down I propose the following:

We wall off sowal (after friends and family have arrived). We have the housing, those folks that speculated won't be needing their empty houses. As for food we have plenty of land in the form of empty lots that aren't selling. We should be just fine. I propose sowal.com stickers as currency.

 

[beachmouse]

Funny thing is that consumer credit for doesn't seem to be hugely affected so far based on how many credit card offers we're still getting at pretty favorable terms.

 

[SHELLY]

Funny thing is that consumer credit for doesn't seem to be hugely affected so far based on how many credit card offers we're still getting at pretty favorable terms.

They'll start to dry up once you miss 3 mortgage payments and your car is repossessed.

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