Money Markets Getting Tighter Again

According to Bloomberg today, August 8, A year after central banks started to pump trillions of dollars into the financial system to end a seizure in credit markets caused by subprime mortgages, cash is about as tight as it's ever been. Jan Misch, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank, said "Money markets are quite clearly still in a pretty bad way and that's not going to change in the foreseeable future, Banks are having to pay significant premiums to borrow cash".

The LIBOR, see the chart below, is within 0.06 percent of the highest since November 1999 compared with the Fed's benchmark interest rate. The largest financial companies have lost almost $500 billion from subprime-linked securities. It signs that Efforts by the Federal Reserve, ECB and Swiss National Bank to shore up the world's biggest banks and promote lending have had limited success.


While The U.S. market for commercial paper or short-term IOUs, backed by assets such as mortgages has shrunk 40 percent from its peak in July 2007, see the chart below. The amount borrowed in pounds between banks in the U.K. fell by 70 percent in June from a record in February 2007. The European Central Bank received $100 billion of bids for the $25 billion it offered to financial institutions on July 29, the most since the sales began in December.


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