Draft: Europe would guarantee inter-bank loans

Draft: Europe would guarantee inter-bank loans

ap.google.com

A draft declaration by euro-zone leaders says their governments plan to temporarily guarantee future loans among private banks to unlock frozen credit markets.

The declaration says the governments would guarantee "for an interim period and on appropriate commercial terms" new interbank loans between private institutions for the next five years.

The statement obtained by The Associated Press says "this scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until Dec. 31, 2009."

(visit the link for the full news article)


Related News Links:
www.bloomberg.com

Wow. Just...wow. This is the proverbial "Hail Mary" pass. This is what appears to be a last-ditch effort to thaw frozen interbank and partially-frozen extrabank lending in the countries that use the Euro. This is fifteen governments in fifteen countries putting their countries' money behind lending between banks, guaranteeing that if a bank defaults on its debt to another bank, the lending bank will be paid back.

From the Bloomberg story linked above:

"I don't even want to imagine what might happen'' if the markets react negatively, Klaus-Peter Mueller, head of the German banking association, said earlier today in Washington before the blueprint was unveiled. The market response may be something "we haven't seen at any stage in our lifetimes."

We should have a clearer picture of the short-term effects in the next twelve hours. The important numbers to watch will be TED spread (4.23 currently) and the 3 month LIBOR (4.23 currently). If those numbers drop, I will not be surprised to see stock markets either rally or, at the very least, recoup some of the losses from the past month.

If those numbers do not drop, if the markets don't rally, then we're in a worse situation than I imagined.

ap.google.com
(visit the link for the full news article)

Nikkei futures are down over 1000...

So, I guess it didn't worked.... but we'll see how the asian markets close... then Europe. If it's bad tomorrow, it will be another ugly week. Cramer says he could go down to 5800 this week for the DOW.

And IMO, if 5800 isn't the bottom... hahahahha. Because if we fall to 5800, it will be around a 70% loss in the markets in less than a year.

And it won't be over.

Anyway, we're already are worse than in the 87 little crash.

[edit on 12-10-2008 by Vitchilo]

deffinatley smacks of desperation

guess this is the last ditch

part of me hopes it fails just to see what happens but another part of me worries itll just be another central bank only this time an actual world bank(not an american bank called world bank) and literally a single market

No link yet, but CNBC just reported that the US will be announcing a similar plan Monday morning.

Maybe a government guarantee will help but there is an underlying question.

Exactly why won't banks lend to each other at the present time?

Yes banks are afraid that they won't be repaid, but why?