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GREAT RECESSION3/12/09 - The cost of borrowing in dollars is rising as the global recession deepens and central bank efforts to prop up the financial system fail to prevent a growing number of banks from requiring government bailouts. The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14. Short-term borrowing costs are increasing as banks hoard cash and governments struggle to thaw credit markets after finance companies reported almost $1.2 trillion of writedowns and losses since the start of 2007. “The market is beginning to think that the solution is either not politically possible, or we can’t afford it, or maybe there isn’t a solution.” The U.S. committed about $10 trillion to combat the financial crisis that started in August 2007 as losses on securities tied to subprime mortgages caused credit markets to seize up. European governments put up more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems. Rising Libor shows banks remain skittish 19 months later because they still don’t know if they can trust each other. “Counterparty risk appetite is something that’s very much on investors’ minds." Wider borrowing spreads show growing concern about corporate defaults as the recession worsens. The global economy will contract this year in what can be called the “great recession,” said the International Monetary Fund. |
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