via Bloomberg:
Libor Mystifies Americans as Mayor Reads `Doomsday' (Update2)
By Peter Robison
Oct. 3 (Bloomberg) -- Anisha Gupta, returning clothes to a Hugo Boss store on Rodeo Drive in Beverly Hills, shrugged when asked about Libor. She had heard the term. She wasn't sure she could define it.
``I thought it was a pill,'' said Gupta, an unemployed 27- year-old who lives in downtown Los Angeles.
Americans are getting a crash course as a once obscure acronym weighs on the economy. In interviews across the country, oil workers, ministers, bank managers and politicians said they were baffled by the London interbank offered rate or fearful of its surge this week. They agreed Libor was important, even if they couldn't put their finger on why.
``Without getting real specific, I think I'm probably not competent to be talking about what is happening overseas,'' said Senator Jon Kyl, an Arizona Republican who helped shepherd passage of a $700 billion bank bailout as his party's No. 2 official. ``It's all happening very rapidly.''
Libor, set every morning in London, is what banks pay to borrow money from each other. That in turn determines prices for financial contracts valued at $393 trillion as of Dec. 31, 2007, or $60,000 for every person in the world, and helps set consumer interest rates on everything from home loans to credit cards.
In the past week, as governments in Europe rescued five banks and the U.S. debated a bailout, the cost of one-month bank loans in euros and overnight dollar loans soared to records. In practice, that means banks are hoarding cash, raising borrowing costs and slowing economies worldwide. Today's three-month Libor for loans in dollars jumped to 4.33 percent.
Still, explaining Libor can be a challenge.
`Very Destructive' ``What you have been seeing in the destruction of Libor in the last months, I cannot really point to that point and say this has impact on car sales,'' said Fritz Henderson, the chief operating officer of General Motors Corp., in a TV interview. ``But certainly it is very destructive.''
The complexities showed during the bailout debate in Congress.
``Very few Americans have ever heard of something called the Libor,'' said Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, on Oct. 1. He defined the term, then said, ``Libor jumped over 400 percent in just one day.''
Actually, overnight dollar loans rose 168 percent on Sept. 30, to a record 6.8 percent from 2.6 percent. Dodd was probably referring to the increase in basis points, or hundredths of a percent, which was 431. A spokesman at Dodd's office in Washington who didn't identify himself said when asked about that: ``I'm sorry. Libor?'' ......(more)
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http://www.bloomberg.com/apps/news?pid=20601109&sid=ahZ4C6T_mjfk&refer=home