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11/15/2008
--- LIBOR Inches Down, World Economic Leaders Meet Today
This week saw further improvement,
although slight, in the interest rate for bank-to-bank loans
(LIBOR). After falling 53% in a month, Libor inched down
this week to finish at 2.24%. The spread between LIBOR and
3-month treasuries (the TED spread) stands at 2.1%, a huge
improvement over the 4.6% rate from five weeks ago. Once
the TED spread gets down to its usual 0.4% rate, this will
signal that the credit markets are operating in their normal
range.
World leaders of G-20 (Group
of 20 industrialized and developing economies that account
for roughly 90% of the global gross domestic product) are
meeting today to improve transparency in the financial markets
to ensure regulators don't allow a repeat of the current
financial crisis. Plans also call for making the global
financial system more accountable to investors while also
creating an "early warning system" to prevent
speculative investing that leads to bubbles.
German Chancellor Angela
Merkel commented that world leaders are working on a plan
"that includes almost 50 actions that have to be implemented
by the end of March. There shall be no blind spots,"
she said. "I believe there is here a great common will
to ensure that such a crisis is not repeated."
One action plan would involve
all nations enacting government spending plans to act as
economic stimulus on a global basis, but consensus has not
yet been reached.
Another meeting of the G-20
is tentatively set for the spring, when Barack Obama will
be acting President. If the G-20 can calm investor fears,
this could go a long way to ensure the market bottom has
been reached. Many stocks are already priced as if another
depression is imminent, but financial policies already in
place make that a very remote possibility. Successful action-plans
by the G-20 could then make it readily apparent that we
are "only" in a recession and that prices of many
stocks have been driven too low.
***
G-20 participants: Argentina,
Australia, Brazil, Britain, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia,
South Africa, South Korea, Spain, Turkey, and the United
States.
