The Cash Flow Is Easing The Global Credit Squeeze
Friday, October 17, 2008SUZANNE PRATT: A volatile end to a whipsaw week on Wall Street. The Dow fell 127 points, after more bleak news on the economy. But the blue chip average still ended its four-week losing streak with a nearly 5 percent gain. Helping underpin stocks today: signs of thawing in the credit markets. Lending rates between banks have finally started to fall. But as Erika Miller reports, experts say it will take time before credit market conditions are back to normal.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It took a costly bank rescue plan from Congress and massive interest rate cuts from central banks around the globe, but finally, today, fixed income expert Brian Edmonds saw an important sign that the credit squeeze is loosening its grip.
BRIAN EDMONDS, DIR. OF FIXED INCOME, CANTOR FITZGERALD: I think today was a major move forward in credit, in that we finally saw three month lending going on in the euro/dollar deposit market. That's the market where banks internationally lend each other monies based in dollars. That market had basically been frozen up until today.
MILLER: Specifically, the three-month London Interbank offered rate or LIBOR fell to 4.42 percent today, although the rate is still well above normal levels. Credit expert Andy Brenner is expecting the rate to fall even faster next week.
ANDREW BRENNER, CO-HEAD OF CREDIT PRODUCTS, MF GLOBAL: A lot of the Fed auctions that we've seen that are trying to alleviate the stress, it's going to be happening in Europe next week. The Swiss national bank, the European central bank and the British will all be auctioning dollars, so we are hoping, and we are predicting, that that will bring rates down.
MILLER: That's not the only positive development. It has become easier in recent days for corporate borrowers to get short term loans in the commercial paper market.
BRENNER: We're also seeing some activity in the corporate bond markets. Morgan Stanley Jan 09's (ph), which is a bond a lot of people own, it's a good sized bond, has gone from 30 percent last week down to about 12 percent this week.
MILLER: But he and others warn that credit conditions are far from normal. And it will likely take months before banks readily lend to each other, let alone consumers. However, the situation today is a vast improvement from just a few weeks ago, when there were serious concerns about a meltdown in the financial system.
EDMONDS: A month ago, almost nobody could get credit. So, we're at a point now where we're freeing that up, normalizing the market place, which is just key, absolutely key in trying to produce conditions that are favorable for the economy.
MILLER: The big risk of course is that the economy slows sharply and home values continue to erode. If that happens, experts warn banks will clamp down on lending to each other and to consumers. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
