A nice article that explains a bit what is going on with the London Inter Bank Offered Rate (LIBOR) is here. LIBOR is an important global interest rate benchmark. LIBOR is high because banks want to avoid lending to one another. They don't know if one of their counterparties is going to be the next bank to become insolvent.
LIBOR is a benchmark that is used to set a lot of floating rate business and consumer loans. When it goes up, as it is right now, loan payments go up.
From that Bloomberg article:
The spread charts and financial acronyms mean real pain for people like Maureen McNally of Trenton, Florida. The monthly payments on her Libor-linked mortgage from Countrywide Financial Corp. have climbed to $769 from about $500.
``I had to give up my cable television, I had to give up my house phones, because I had to cut back completely,'' said the 53-year-old gift processor at the University of Florida in Gainesville. ``I am so disgusted with this whole mortgage thing I never want to own a home again.''
McNally says she's had her house on the market for nine months without an offer.
Showing posts with label Financial Crisis. Show all posts
Showing posts with label Financial Crisis. Show all posts
Thursday, October 9, 2008
Wednesday, October 8, 2008
It's (already) a disaster, not a buying opportunity, Mr. Harper.
A lot of people have already commented but here is my take on Stephen Harper's statement to reporters yesterday (Oct. 7, 2008), "I think there are probably some great buying opportunities emerging on the stock market as a consequence of all this panic" and the statement on the Conservative Party website related to the belated release of their election platform, "The Liberals and the NDP are both a vote for financial disaster" (their emphasis).
Look, it's already a financial disaster (I won't quote somebody else. I'll back that statement up with my past years of experience working in the financial markets). If the Conservatives really believe a vote for the Liberals is going to turn this situation into one, they don't understand what's going on. Maybe they don't want to, or can't. Hey, C's! It's already a disaster guys.
Note how the Conservatives are lumping the Liberals and NDP together so that they can criticize the Liberal Party on economic management. From the Financial Post, Stephen Harper said, "The Opposition proposes raise taxes. In particular, and look at the stock market today -- where the big hits are on energy and commodity prices. And the Opposition proposes carbon taxes. The Opposition proposes to raise taxes on companies in the energy business and other commodity businesses." They have to add in the NDP's plan to cancel planned business tax cuts. They can't simply criticize the Green Shift any more, especially with the publication of the open letter from 230 economists supporting a carbon tax as the best way to fight global warming.
Look, nobody is blaming the financial disaster on the government. This is an international problem, but it is a disaster. Hey, C's! It's already a disaster guys.
The questions Canadians should be asking themselves as they head to the polls on October 14th are, "Who is going to acknowledge the economic crisis as more than a buying opportunity on the stock market? Who has economic management experience? Who will, given that a recession is a near certainty, also look out for the vulnerable members of our society?". That would not be the Conservative Party.
Look, it's already a financial disaster (I won't quote somebody else. I'll back that statement up with my past years of experience working in the financial markets). If the Conservatives really believe a vote for the Liberals is going to turn this situation into one, they don't understand what's going on. Maybe they don't want to, or can't. Hey, C's! It's already a disaster guys.
Note how the Conservatives are lumping the Liberals and NDP together so that they can criticize the Liberal Party on economic management. From the Financial Post, Stephen Harper said, "The Opposition proposes raise taxes. In particular, and look at the stock market today -- where the big hits are on energy and commodity prices. And the Opposition proposes carbon taxes. The Opposition proposes to raise taxes on companies in the energy business and other commodity businesses." They have to add in the NDP's plan to cancel planned business tax cuts. They can't simply criticize the Green Shift any more, especially with the publication of the open letter from 230 economists supporting a carbon tax as the best way to fight global warming.
Look, nobody is blaming the financial disaster on the government. This is an international problem, but it is a disaster. Hey, C's! It's already a disaster guys.
The questions Canadians should be asking themselves as they head to the polls on October 14th are, "Who is going to acknowledge the economic crisis as more than a buying opportunity on the stock market? Who has economic management experience? Who will, given that a recession is a near certainty, also look out for the vulnerable members of our society?". That would not be the Conservative Party.
Monday, October 6, 2008
Listening to the markets is not fear-mongering
The Conservatives have been accusing Stephane Dion of "fear-mongering around the economy for his own gain". I used to work in the financial markets and one of the fundamental things you have to know there is that market prices contain information. Nobody has to "fear-monger". Prices in the stock and bond markets make it clear that there is a serious risk of global recession.
Almost everybody is used to following the stock markets, but almost nobody follows something called the interbank offered rate (e.g. LIBOR, the rate set in London). This is the rate that banks use as a benchmark to charge each other for loans. LIBOR is also a reference rate for businesses and consumers borrowing money and is a critical number in the international money markets. What is unprecedented is that difference between ('risky') LIBOR and the interest rate on ('riskless') US treasury securities has exploded and halted a lot of financing of business activity around the world. The stock market drop is nothing compared to what is going on in LIBOR. Do not think that this stock market decline is the same as any other you've seen in your lifetime.
Canada is not the master of its own fate as to the question of whether or not there is a recession. All of that depends mostly on the U.S. economy. Our choice on October 14th is whether or not to acknowledge the possibility of a serious recession, how ready we want to be for it and for protecting our most vulnerable fellow Canadians.
Conservatives have been saying that there is no serious financial crisis amongst Canadian banks. That may be true. But even if the world's financial problems do not impact the Canadian financial system, the slowdown in the world's (especially the U.S.'s) economies will impact (or already have impacted) Canada's economy - and that means job losses. We should be getting ready to take care of each other.
Doing nothing is the risky option. Not admitting the real possibility of a painful recession makes it worse. The choice between a Conservative government and a Liberal government is even clearer.
Almost everybody is used to following the stock markets, but almost nobody follows something called the interbank offered rate (e.g. LIBOR, the rate set in London). This is the rate that banks use as a benchmark to charge each other for loans. LIBOR is also a reference rate for businesses and consumers borrowing money and is a critical number in the international money markets. What is unprecedented is that difference between ('risky') LIBOR and the interest rate on ('riskless') US treasury securities has exploded and halted a lot of financing of business activity around the world. The stock market drop is nothing compared to what is going on in LIBOR. Do not think that this stock market decline is the same as any other you've seen in your lifetime.
Canada is not the master of its own fate as to the question of whether or not there is a recession. All of that depends mostly on the U.S. economy. Our choice on October 14th is whether or not to acknowledge the possibility of a serious recession, how ready we want to be for it and for protecting our most vulnerable fellow Canadians.
Conservatives have been saying that there is no serious financial crisis amongst Canadian banks. That may be true. But even if the world's financial problems do not impact the Canadian financial system, the slowdown in the world's (especially the U.S.'s) economies will impact (or already have impacted) Canada's economy - and that means job losses. We should be getting ready to take care of each other.
Doing nothing is the risky option. Not admitting the real possibility of a painful recession makes it worse. The choice between a Conservative government and a Liberal government is even clearer.
Monday, September 29, 2008
The Economy: keeping on track may mean being run over
I think the point has to be made that the Conservatives' "keeping Canada on track", steady-as-she-goes, economic management philosophy may be just the wrong thing for an economy threatened by a global recession.
Sometimes staying the course is the most risky thing to do.
The financial crisis that began with the collapse of the (mostly US) housing bubble, spread to subprime mortgages and the credit markets, and became a systemic threat to the financial system is not over. I'm looking at the Interbank Offered Rates in the financial markets this morning and the high rates there show that despite the US government's rescue package, international banks are still reluctant to lend. The effect of this financial crisis on the overall (global!) economy has yet to be revealed and we must be prepared to take action to deal with a possibly severe recession.
Look at the dramatic moves to lower interest rates, open up lending, and take over illiquid mortgage assets that US authorities have had to take.
In the face of an imminent economic crisis, I'm worried that a Conservative government could only imagine sitting tight, like a deer caught in the lights of an on-coming freight train, 'keeping Canada on track' only to let us be run over by a global recession.
The Conservatives' inability to imagine taking bold action: that's risky. Don't let them win votes by taking advantage of the current financial crisis to scare Canadians away from making a change to a government with the ability to admit to the truth and to take decisive, informed, and well-considered action.
Sometimes staying the course is the most risky thing to do.
The financial crisis that began with the collapse of the (mostly US) housing bubble, spread to subprime mortgages and the credit markets, and became a systemic threat to the financial system is not over. I'm looking at the Interbank Offered Rates in the financial markets this morning and the high rates there show that despite the US government's rescue package, international banks are still reluctant to lend. The effect of this financial crisis on the overall (global!) economy has yet to be revealed and we must be prepared to take action to deal with a possibly severe recession.
Look at the dramatic moves to lower interest rates, open up lending, and take over illiquid mortgage assets that US authorities have had to take.
In the face of an imminent economic crisis, I'm worried that a Conservative government could only imagine sitting tight, like a deer caught in the lights of an on-coming freight train, 'keeping Canada on track' only to let us be run over by a global recession.
The Conservatives' inability to imagine taking bold action: that's risky. Don't let them win votes by taking advantage of the current financial crisis to scare Canadians away from making a change to a government with the ability to admit to the truth and to take decisive, informed, and well-considered action.
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