LIBOR's Liable To Li-Boom

The three month LIBOR numbers have been steadily but slowly improving over the last four and a half weeks. That is...until today.

The cost of borrowing dollars for three months in London rose, snapping a 23-day decline, signaling policy makers have yet to succeed in thawing the global credit freeze.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans increased almost 2 basis points to 2.15 percent today, according to British Bankers' Association data. The last time the rate climbed was Oct. 10. The overnight rate also climbed 2 basis points, to 0.40 percent, or 60 basis points below the Federal Reserve's target rate.

Declines in money-market rates may be slowing amid signs the financial crisis will persist and is spreading to the global economy. U.S. Treasury Secretary Henry Paulson said yesterday he plans to use the second half of the $700 billion financial-rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``There's still a lot of uncertainty, especially after the change in the U.S. rescue plan,'' said Alessandro Tentori, a fixed-income strategist in London at BNP Paribas SA. ``The perception in the market will change.''

The global hedge-fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.

The LIBOR and TED spread numbers are still much higher than they need to be historically, and if they are heading back UP now due to the US bailout being focused on buying bank stock stakes rather than buying bad mortgage securities and getting them off the books of banks, it means...surprise!

The $700 billion bailout isn't working at all.

We're changing plans in midstream here. Treasury has been reduced to throwing things at the wall to see what sticks, meanwhile the auto industry is about to go under and banks are doing exactly what I said they would do a month ago: sit on all their nice safe government cash and use it for everything BUT lending to consumers and businesses.

Another bailout program will inevitably be signed into law by Obama in early 2009. He'll have no choice.