Tuesday, October 28, 2008

Credit Seizing Up Again

Two indicators show the credit system remains gunked up, despite the Bush administration's trillions in financial interventions. Bank holdings at the Federal Reserve were $167 billion on October 1 vs. $14 billion on July 2. Ben Bernake announced an increase in interest paid by the Fed on excess reserves. How might that impact bank's willingness to lend?

Ex=Wall Street investment houses, Goldman Sachs and Morgan Stanley, are again under pressure. This is after fleeing to commercial banks status and billions of capital injections from new investors and the Treasury. Both firms' stock continue to tank, while the price of credit coverage approaches September 15 levels. Goldman CDS's rose to $335,000 and Morgan Stanley's to $448,000 for a years coverage on $10 million in debt. Will they soar in a redux of September 18?

The big money boys still don't trust each other to make good on their debts. Famous economist Anna Schwatrz predicts the bailout plan won't solve the credit problem. Evidence to date supports her concerns.