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Times: Borrowing Rate Hit A 10 Year High This Afternoon

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http://business.timesonline.co.uk/tol/busi...icle2385920.ece

Times OnlineSeptember 4, 2007

14:02hrs
Banks' borrowing rate hits 10-year high as fears grow
British banks' are unwilling to lend to money to each other
as pressure mounts on the Bank of England to relieve the UK credit crunch Dearbail Jordan
Banks today faced a
10-year high on the cost of borrowing money
as jitters over liquidity in the UK market increased institutions’ reluctance to lend funds to each other.
The London interbank offered rate (Libor) for three-month sterling rose to 6.79 per cent, which is the highest level since late 1998 when the collapse of the hedge fund Long Term Capital Management ignited fears of a worldwide financial crisis...../
Today Alliance & Leicester became the first UK bank to give a comprehensive breakdown of its investments that include sub-prime mortgage instruments.
:o

If money is skyrocketing in price at the wholesale level people still buying houses might find that their loans will get a bit dear soon. I wonder if they will be able to afford inflated house prices AND inflated loan prices? OO-er. :blink:

Edited by Realistbear

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Banks' borrowing rate hits 10-year high as fears grow

British banks' are unwilling to lend to money to each other as pressure mounts on the Bank of England to relieve the UK credit crunch Dearbail Jordan

Good! They just need to keep up the good work by refusing to lend money to the members of 'brainwashed-I want it now' society.

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http://business.timesonline.co.uk/tol/busi...icle2385920.ece

Times OnlineSeptember 4, 2007

14:02hrs
Banks' borrowing rate hits 10-year high as fears grow
British banks' are unwilling to lend to money to each other
as pressure mounts on the Bank of England to relieve the UK credit crunch Dearbail Jordan
Banks today faced a
10-year high on the cost of borrowing money
as jitters over liquidity in the UK market increased institutions’ reluctance to lend funds to each other.
The London interbank offered rate (Libor) for three-month sterling rose to 6.79 per cent, which is the highest level since late 1998 when the collapse of the hedge fund Long Term Capital Management ignited fears of a worldwide financial crisis...../
Today Alliance & Leicester became the first UK bank to give a comprehensive breakdown of its investments that include sub-prime mortgage instruments.
:o

If money is skyrocketing in price at the wholesale level people still buying houses might find that their loans will get a bit dear soon. I wonder if they will be able to afford inflated house prices AND inflated loan prices? OO-er. :blink:

What I find quite exciting and definitely interesting is the rapid spread of information. The world has never before been in a position where information can be divulged so fast and so far. - to those who are willing to hear. The banks are faced with a situation that has never before occurred in human history - rapidly transferable knowledge. My personal take is that it will cause specualtive bubbles to unwind much faster than has historically been the case, and that means that intervention is likely to be less successful and that markets (which after all only represent a conglomerate of human sentiment) will be more powerful than ever. Governments, Fed, B o E don;t stand a chance against the internet - or so it seems to me.

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Something that's been intriguing me about this, being someone largely ignorant of these things. Is this essentially the market taking control of interest rates because the relevant central banks have been unwilling to?

Surely now mortgage rates will increase regardless of the BOE base rate? is it just market forces at work? Money *should* be more expensive in the current climate so the market is making it so, whether the fed or BOE like it or not.

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Something that's been intriguing me about this, being someone largely ignorant of these things. Is this essentially the market taking control of interest rates because the relevant central banks have been unwilling to?

Surely now mortgage rates will increase regardless of the BOE base rate? is it just market forces at work? Money *should* be more expensive in the current climate so the market is making it so, whether the fed or BOE like it or not.

To the extent that markets represent broad human sentiment, yes, the markets are taking control. Governments try to influence, but just ask George Soros how he managed to to make billions when the UK eventually had to admit that the ERM was a one way put for investors and was forced to withdraw. Markets always win in the long run because they represent real thinking, however much governments like to think that they can control them. Governments operate on wishful thinking. And when wishful thinking meets the real deal, guess which wins?

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Banks today faced a 10-year high on the cost of borrowing money as jitters over liquidity in the UK market increased institutions’ reluctance to lend funds to each other.

Makes you wonder that if they wont lend to each other, why should I lend to them......

VMR.

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Isn't that higher than the Bank penalty rate?

How does the BofE keep rates at 5.75 against this backdrop in the market :unsure: ?

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If someone borrowed money, then fell on hard times, and asked to borrow some more money to help them through, would the lender not reasonably then ask for breakdowns of income and expenditure in order to determine whether the potential borrower had just hit a flat spot or whether insolvency looms in order to determine whether to lend or not?

In these terms - do the BOE ask *why* Barclays et-al need the cash and then potentially refuse it if it looks like it's on the verge of going tits up?

If the issue is with these "packaged" mortages and hedge funds where the Bank doesn't actually have a handle on its own solvency thanks to the nature of the mixing up of good and bad loans: then the Bank knew that from the start, it was after all the very nature of the "product", so why would anyone bail them out/what's the "surprise" here?

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it is higher than the BOE rate which means that they are no longer loaning each other money. That is very serious IMO

I might be wrong here, but this won't have too much effect on the majority of mortgages.

The banks and building societies that don't package/resell the debt, should be able to continue to offer the same deals.

Remember, when someone borrows the money to buy a house from them, they 'create' the money from thin air.

Of course, if no-one is buying the debt, then the banks and building societies that DO sell the debt on will have a choice of tightening their criteria and taking the risk on themselves - or upping the interest rates to reflect the risk.

Of course, upping the interest rate will make them uncompetitive - and probably see an end to thier business model.

Does anyone know how many UK banks/building societies sell on their mortgages?

BM and NR are 2 that come to mind...

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The rapidly transferable knowledge that caused a panic upwards will also cause a panic downwards - touch wood!

Unfortuneatly "rapidly transferable knowledge" failed to prevent an unsustainable "panic upwards" in the first place :unsure:

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Something that's been intriguing me about this, being someone largely ignorant of these things. Is this essentially the market taking control of interest rates because the relevant central banks have been unwilling to?

Surely now mortgage rates will increase regardless of the BOE base rate? is it just market forces at work? Money *should* be more expensive in the current climate so the market is making it so, whether the fed or BOE like it or not.

Very good way of putting it frozenpeas. What are the BoE for anyway? They're just a company - why can't they go bust? WOuld do us all a favour.

Gordon should introduce government 'greenbacks'.

Hang on - a couple of leaders in the past have mooted that and ended up with an extra airse hole.

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Guest vicmac64
http://business.timesonline.co.uk/tol/busi...icle2385920.ece

Times OnlineSeptember 4, 2007

14:02hrs
Banks' borrowing rate hits 10-year high as fears grow
British banks' are unwilling to lend to money to each other
as pressure mounts on the Bank of England to relieve the UK credit crunch Dearbail Jordan
Banks today faced a
10-year high on the cost of borrowing money
as jitters over liquidity in the UK market increased institutions’ reluctance to lend funds to each other.
The London interbank offered rate (Libor) for three-month sterling rose to 6.79 per cent, which is the highest level since late 1998 when the collapse of the hedge fund Long Term Capital Management ignited fears of a worldwide financial crisis...../
Today Alliance & Leicester became the first UK bank to give a comprehensive breakdown of its investments that include sub-prime mortgage instruments.
:o

If money is skyrocketing in price at the wholesale level people still buying houses might find that their loans will get a bit dear soon. I wonder if they will be able to afford inflated house prices AND inflated loan prices? OO-er. :blink:

RB whats the prognosis on Alliance and Leicesters liquidity? Is there any risk to savings based on what you see?

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Many years ago I worked for a firm that traded large quantities of spot physical and forward physical commodities. It required very large amounts of credit to operate its business every day. The industry it operated in was such that all the other players in the industry also required very large amounts of credit.

The banks that we operated closely with on a daily basis would immediately relay any rumours in the market about any other player in difficulties from trading losses, breaching banking covenant etc. The information grapevine was such that I guess it took less than 2 hours for the entire market to find out who was in trouble.

The current situation in the LIBOR interbank and overall credit market suggests to me that very senior bankers and credit officers do not feel thay have a very good handle on who is in trouble and who is not. This is a VERY unusual situation because despite being competitors they all have an interest in sharing informal credit information - after all if someone fails they all risk large credit losses from a domino collapse. For some reason, that no one knows, information is not being made availble on a timely basis and the BoE seems to be coming in for criticism for not sharing all the information that people think it has.

I know nothing about any individual bank position and I am not suggesting that the BoE knows something it is refusing to disclose. However, the fact that banks are not loaning money to each other means that credit officers are in the dark about the true state of the creditworthiness of many very large financial market players. For this information 'black hole' to have continued for so long (4 weeks or more now) without being resolved is extremely unusual and extremely serious. Without good information the credit market will continue to malfunction.

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http://www.bloomberg.com/apps/news?pid=206...id=a8uEKKBYY7As

Barclays Takes a Money-Market Beating: Mark Gilbert (Update1)

By Mark Gilbert

As one of my editors used to preach, ``in price, is knowledge.'' There's knowledge buried in the price that Barclays is being charged in the money markets. We just don't know what that knowledge is yet.

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http://business.timesonline.co.uk/tol/busi...icle2385920.ece

Times OnlineSeptember 4, 2007

14:02hrs
Banks' borrowing rate hits 10-year high as fears grow
British banks' are unwilling to lend to money to each other
as pressure mounts on the Bank of England to relieve the UK credit crunch Dearbail Jordan
Banks today faced a
10-year high on the cost of borrowing money
as jitters over liquidity in the UK market increased institutions' reluctance to lend funds to each other.
The London interbank offered rate (Libor) for three-month sterling rose to 6.79 per cent, which is the highest level since late 1998 when the collapse of the hedge fund Long Term Capital Management ignited fears of a worldwide financial crisis...../
Today Alliance & Leicester became the first UK bank to give a comprehensive breakdown of its investments that include sub-prime mortgage instruments.
:o

If money is skyrocketing in price at the wholesale level people still buying houses might find that their loans will get a bit dear soon. I wonder if they will be able to afford inflated house prices AND inflated loan prices? OO-er. :blink:

Would you lend to someone if you thought they could not pay you back,also seems there is a bit of self preservation going on eg may need the money themselfs to ride the storm.

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the thing is this has spread to the LIBOR futures market LFL was trading at 6.38% in the blue month today !!!!!!!!! 6.79% in the near month.

CONTAGION or what that means 6 month money is at least 75basis points above the base rate. equivalent to 3 more rate rises.

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Many years ago I worked for a firm that traded large quantities of spot physical and forward physical commodities. It required very large amounts of credit to operate its business every day. The industry it operated in was such that all the other players in the industry also required very large amounts of credit.

The banks that we operated closely with on a daily basis would immediately relay any rumours in the market about any other player in difficulties from trading losses, breaching banking covenant etc. The information grapevine was such that I guess it took less than 2 hours for the entire market to find out who was in trouble.

The current situation in the LIBOR interbank and overall credit market suggests to me that very senior bankers and credit officers do not feel thay have a very good handle on who is in trouble and who is not. This is a VERY unusual situation because despite being competitors they all have an interest in sharing informal credit information - after all if someone fails they all risk large credit losses from a domino collapse. For some reason, that no one knows, information is not being made availble on a timely basis and the BoE seems to be coming in for criticism for not sharing all the information that people think it has.

I know nothing about any individual bank position and I am not suggesting that the BoE knows something it is refusing to disclose. However, the fact that banks are not loaning money to each other means that credit officers are in the dark about the true state of the creditworthiness of many very large financial market players. For this information 'black hole' to have continued for so long (4 weeks or more now) without being resolved is extremely unusual and extremely serious. Without good information the credit market will continue to malfunction.

There is an air of complete unreality at the moment. Given the surprisingly pessimistic tone of some of the Central Bankers at Jackson Hole one can assume that there are still some huge losses sitting out there waiting to be uncovered. Yet stock markets around the world have not tanked. I suspect that in part this is because equities is one area where there is still the possibility of some 'action' for traders. Also by comparison with a lot of credit derivatives shares are relatively transparent and easily marked to market. This probably explains how some air head on CNBC could describe tech stocks as relatively safe investments. How long this benign state of affairs can last is anyones guess but I imagine that it is not going to bet long before reality bites. Without a flow of relatively cheap credit to business and consumers then economic activity is likely to slow quite rapidly. This is going to cane company earnings and profits. Once that happens things are going to get unpleasant.

nb - It is not just the sterling LIBOR rate that is hitting new highs

http://www.ft.com/cms/s/0/d7a4be24-5b1c-11...00779fd2ac.html

http://investing.reuters.co.uk/news/articl...FRESH-HIGHS.XML

Edited by up2nogood

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Many years ago I worked for a firm that traded large quantities of spot physical and forward physical commodities. It required very large amounts of credit to operate its business every day. The industry it operated in was such that all the other players in the industry also required very large amounts of credit.

The banks that we operated closely with on a daily basis would immediately relay any rumours in the market about any other player in difficulties from trading losses, breaching banking covenant etc. The information grapevine was such that I guess it took less than 2 hours for the entire market to find out who was in trouble.

The current situation in the LIBOR interbank and overall credit market suggests to me that very senior bankers and credit officers do not feel thay have a very good handle on who is in trouble and who is not. This is a VERY unusual situation because despite being competitors they all have an interest in sharing informal credit information - after all if someone fails they all risk large credit losses from a domino collapse. For some reason, that no one knows, information is not being made availble on a timely basis and the BoE seems to be coming in for criticism for not sharing all the information that people think it has.

I know nothing about any individual bank position and I am not suggesting that the BoE knows something it is refusing to disclose. However, the fact that banks are not loaning money to each other means that credit officers are in the dark about the true state of the creditworthiness of many very large financial market players. For this information 'black hole' to have continued for so long (4 weeks or more now) without being resolved is extremely unusual and extremely serious. Without good information the credit market will continue to malfunction.

Interesting insight. Thanks, Wad.

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