Sep 24 2008
Why the Credit Crunch Is Not Quite Over Yet
Just read another article on WSJ that talks LIBOR: Libor’s Accuracy Becomes Issue Again
Looks like there is some “institutional lying” going on: the libor rate (short term inter-bank loans, unsecured) is lower than the rate charged by the Federal Reserve through auction facilities (tech. operation, collateralized). The article reasonably speculates that, since libor is calculated based on reported inter-bank loan rates (from member banks), it is likely the banks are under-reporting the rate they are charged for in order to hide their own credit risks.
Why doesn’t the Congress tie the rescue/bailout package to the libor/Fed facility spread? This is a joke, of course. But I didn’t start it.