Surprise! The Global Bailouts Fail
October 15 2008 (LPAC)--The gigantic US and European bailouts of the last 48 hours of some $2.6 trillion, had zero effect on the corpse they were supposedly intended to resuscitate, i.e. the world interbank lending system, a senior European banking source told EIR today. This, despite the fact that a large part of the guarantees issued on both sides of the Atlantic is a 100% guarantee of interbanking lending.
What the media and politicians are saying, the source reported, has nothing to do with what's happening in the boardrooms. At any moment we will see giant companies going bankrupt because there is no credit. Bankers are sitting around the table trying to figure out how not to cut credit lines to essential institutions. In the last 48 hours credit has eased up a tiny bit but not anywhere near enough. The banks will have to start calling in loans and credit lines to even shop-keepers.
The source report is confirmed by other public reports today. "Bail-out fails to free up interbank borrowing", the Financial Times headlines an article which reports that "three-month Libor, the most important interbank lending rate that is used to price loans, derivatives and many other kinds of financial products, has barely moved in sterling markets". Similarly, "euro hree-month Libor, which was down 7.37bp at 5.225 per cent yesterday, remains high."
Another example of the failure of the global bailout is that none of the French banks have dared to go anywhere near the new 40 billion borrowing facility created by the State so far, for fear that rumours could lead to massive attacks on their stocks. Stocks of Credit Agricole were targeted after the CEO of the bank announced that he didn't exclude going to the new fund, and went up again when the CEO denied having any problems. Similarly with other banks, in particular, Societe Generale.