The Euribor, a similar rate for the euro, rose 22 basis point to 4.37%. However, the Euribor has fallen from Monday's all-time high of 5.35%.
Currency Trader Andrew Resnick told BloggingStocks Tuesday overnight interest rates remain at elevated levels mainly due to fear.
"The biggest problem, clearly, is the lack of confidence. There are distressed and bad bonds out there, but it should not be affecting the financial system this much. The reason it has is fear. No one knows who owns what bonds, and no one trusts anyone," Resnick said. "This is the worst condition I've seen in the credit markets in my 20 years of trading." Resnick added that he was presently flat, or had no open currency trading positions.
Resnick said central banks may have to guarantee the assets of creditors to banks and/or provide insurance (credit default swaps) to purchasers of corporate commercial paper to lower overnight interest rates and increase the flow of credit. Or central banks may have to "undertake a large investment in banks to recapitalize them," he said.
After the crisis is over, a major, international effort to standardize transparency must be passed by national legislatures, he said. "What this crisis demonstrates is that we need transparency with no 'side car' or 'structured investment vehicles' that are off the balance sheet. If fear can cause this much systemic stress, then everything has to be transparent," Resnick said.
Monetary Policy / Economic Analysis: An FDIC guarantee of creditors of banks and/or insurance by the Fed for purchasers of corporate commercial paper looks like two good ideas which the Fed and U.S. Treasury should consider to loosen credit markets. The FDIC has the authority, in an emergency, to guarantee the debts of all banks, and a commercial paper guarantee by the Fed may be easier and quicker to implement than the Fed lending short-term funds to corporations.
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Reader Comments (Page 1 of 1)
10-07-2008 @ 2:14PM
Jason said...
Do you have a Private mortgage insurance (PMI) policy? If you do your PMI insurer has passed along their risk by buying a credit default swaps (CDS) to protect them in the event you have your home that your home is taken away from you. CDS and PMI are the same thing. Make people wanting to buy a home put at least 20% down if you don't like them. nomedals.blogspot.com