Any experts out there who can explain this? Seems kind of worrying.
NYT:
" . . . The anxiety gripping the credit markets refused to abate. Banks continued to hoard cash, clogging crucial financial arteries that keep money flowing to businesses and consumers for car loans, credit cards and payroll payments . . .
The Libor rate, a benchmark gauge that measures how much banks are charging one another for overnight loans, jumped the most in one day in nearly a decade. . .
The moves in the credit market, if sustained over time, could have ripple effects on a wide swath of the economy.
Many businesses depend on short-term loans to finance their day-to-day operations, like utilities and payroll."
http://www.nytimes.com/2008/09/26/business/26markets.html?_r=1&hp&oref=sloginBanks don't trust each other enough to loan money, like from you boss' bank to the one you cash your paycheck at. So the Fed is doing it for them. How long can this last?
The WaPo:
"(Peter R. Orszag, director of the Congressional Budget Office) said that the Treasury was acting as a go-between in short-term lending between banks. Instead of Bank A lending directly to Bank B, as is customary, Bank A no longer had confidence that Bank B could repay the loan.
So Bank A would give the money to the Treasury, which issued a security that was put into the Federal Reserve, which then issued the cash to Bank B.
If the government is forced to intermediate such ordinary transactions, commerce slows, credit confidence remains low, and operational strain is placed on the Treasury and the Fed."
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092402799_2.html?hpid=topnews&sid=ST2008092403541&s_pos=Strain on the Treasury? That's an understatement. $700 bil. for Wall Street, $412 Bil. for GM, $10 Bil. a week for Iraq, and then there's the FDIC, which only has $45.2 Bil. to cover our bank deposits.
But, not to worry.
Quote from Sep 16 AP article:
"Treasury Secretary Henry Paulson said Monday that the country's commercial banking system 'is safe and sound' and that 'the American people can be very, very confident about their accounts in our banking system.' FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital."
http://news.yahoo.com/s/ap/20080916/ap_on_bi_ge/bank_deposits_safetySome how Paulson's reassurances don't reassure.
How long before your boss starts offering services in kind in lieu of cash? Personally, I'm fine with it, I work at a bar!