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Attempts to Ease Credit Crunch Reveal Mixed Results

Several plans have been enacted in recent weeks to loosen the flow of credit and ease the financial crisis. An expert panel evaluates the efforts and the state of the credit sector.

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  • JEFFREY BROWN:

    Much government effort and public attention has been aimed at the worldwide lending squeeze. Consider that just a few weeks ago, few of us ever tossed around a term like LIBOR, the rates at which banks lend to each other.

    There seem now to be some hints of a credit market thaw, but how much and to what effect?

    We update the situation now with Karen Shaw Petrou, managing partner of the consulting firm Federal Financial Analytics; Diane Swonk, senior managing director and chief economist for Mesirow Financial, a financial services firm in Chicago; and Andrew Ross Sorkin, reporter and columnist for the New York Times. He also edits the DealBook blog on the Times' Web site.

    Karen Petrou, I mentioned LIBOR, that lending rate between ranks has dropped to its lowest level in over a month. That's a good thing, right?

  • KAREN SHAW PETROU, Federal Financial Analytics:

    That's right.

  • JEFFREY BROWN:

    Why?

  • KAREN SHAW PETROU:

    LIBOR means the rates that banks charge each other. And we can't get the money until the banks do. And we can't get it at a rate that we want or that the economy can benefit from until the banks are able to move the money at the lowest possible cost.

  • JEFFREY BROWN:

    And so now, what can they — they lend to each other at a better cost?

  • KAREN SHAW PETROU:

    If this stays down — the markets have been terrifically volatile. So while the news is very, very good, it's far too soon in these strange and strained market times to look too far ahead.

    I'd say this is so far, so good. And the way the markets have been, that's the best we've seen in a really long time.

  • JEFFREY BROWN:

    All right, Diane Swonk, well, first, I mispronounced the name of the company. It's Mesirow. Sorry about that.

    Do you see signs of — do you see signs of a thaw?

  • DIANE SWONK, Chief Economist, Mesirow Financial:

    You know, there are very marginal signs of a thaw. I think the real important issue here is, as we already noted, that banks are finally lending to each other, but we're not seeing it on Main Street yet.

    The moves by the Fed today are critical but we saw nameplate companies like Caterpillar not be able to get funding, and over time that means not be able to get funding for payroll on perfectly viable companies.

    We saw a lot of retailers not be able to get funding for their inventories for the holiday season. Many are going to be closing their doors or not doing seasonal hires, actually firing people before the holiday season comes.

    I think these are very critical issues, because they're also not getting the financing to offer those 0 percent financing deals that we want — we usually see during the holiday season, all those flat-screen TVs that are usually financed on 0 percent financing.

    Many people thought that would be a big seller this season because of the change to HDTV in February. Those deals are going to be much fewer and far between because of the credit market situation and the slow rate at which it will reach Main Street again.

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