Libor Fails to Drop From 7-Year High; Crunch Persists (Update6)
Dec. 13 -- The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.
The cost to borrow for three months remained at 4.95 percent, the British Bankers' Association said today. That's 95 basis points, or 0.95 percentage point, more than the European Central Bank's benchmark interest rate, compared with 57 basis points a month ago. The difference averaged 25 basis points in the first half of the year, before losses on securities linked to U.S. subprime mortgages contaminated credit markets.
The highest short-term rates since December 2000 suggest that the first coordinated central bank action since the Sept. 11, 2001, terrorist attacks may not be enough to revive interbank lending. The cost of borrowing dollars fell 7 basis points to 4.99 percent, about half what was anticipated, based on prices of Libor futures contracts.
``It's not going to help us find an exit to this crisis,'' said Cyril Beuzit, head of interest-rate strategy at BNP Paribas SA in London. ``These measures aren't going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news.''
Reacting to Losses
Central banks in the U.S., U.K., Canada, Switzerland and the euro region agreed yesterday to coordinate efforts to promote lending and restore confidence in money markets. Policy makers are reacting to more than $66 billion of losses announced by banks this year and estimates of about $300 billion more on securities linked to subprime mortgages, collateralized-debt obligations and structured investment vehicles, or SIVs.
The measures won't succeed in bringing down borrowing rates until next year, futures trading in Europe suggests.
Implied yields on Euribor futures contracts expiring this month through June 2009 rose today, with the December contract climbing 6 basis points to 4.92 percent. The implied yield on the March 2008 contract gained 6 basis points to 4.6 percent.
``The markets don't expect spreads to go down,'' said Alexander Titsch-Rivero, head of derivatives and structured products in Frankfurt at BHF-Bank AG, a German private bank. ``The actions by the central banks were just a placebo, a tranquilizer that doesn't solve the problem of the mistrust among banks on one hand and the potential for more losses in credit on the other.''
Stocks, Bonds
The interest rate for euros compiled by the European Banking Federation was little changed at a seven-year high of 4.95 percent, compared with 4.18 percent at the start of July.
Stocks extended declines, with the Euro Stoxx 600 index falling 2 percent. Yields on three-month Treasury bills, regarded as a haven for investors in times of turmoil, held at 2.87 percent, close to the lowest since Aug. 20.
The difference between the interest banks and the government pay for three-month loans, called the TED spread, rose to 2.21 percentage points yesterday from 1.59 percentage point on Sept. 18, when the Fed began lowering rates.
``It's a very disturbing sign,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``I'm alarmed by the impact this is having, which underscores that the funding difficulties out there are enormous.''
The Fed plans four auctions, including two this month that will add as much as $40 billion, to increase cash in the U.S. The Bank of England said it would widen the range of collateral it will accept on three-month loans.
Seized Up
Short-term credit markets seized up in August, raising concern that the lack of capital flow between banks will hurt the economy. Goldman Sachs Group Inc. in a report a month ago estimated losses related to record home foreclosures may be as high as $400 billion for financial companies. If accurate, banks, brokerages and hedge funds would need to cut lending by $2 trillion, triggering a ``substantial recession,'' the firm said.
Borrowing costs have soared over the past four weeks as banks sought loans that will cover their commitments through to the start of next year.
``We're coming up to a real end of the year liquidity squeeze,'' said Stewart Taylor, who trades Treasuries in Boston at Eaton Vance Management, which oversees about $4 billion of taxable bonds. ``A lot of people are just pumping into bills rather than lending. Why loan money over the end of the year if you don't have to.''
Brown, Geithner
U.K. Prime Minister Gordon Brown said the surge in credit costs should spur increased transparency in the banking industry and change the way credit-rating companies work.
``It's a wake-up call for the global economy,'' Brown told lawmakers in Parliament in London today. ``The existing institutions aren't good enough.''
Fed Bank of New York President Timothy Geithner said today central bankers are looking at ``additional instruments'' to provide funds to banks in times of stress.
``The market is underestimating the significance of the move by the central banks,'' said Ciaran O'Hagan, head of interest-rate research in Paris at Societe Generale SA. ``It's a strong action that will tide us safely over year-end and hopefully restore confidence to the money markets early in the new year.''
Turmoil in the credit markets has caused losses for everyone from shareholders of New York-based Citigroup Inc., the largest U.S. bank, to Florida schools and towns invested in a state-run fund that owned downgraded and defaulted securities issued by SIVs. Citigroup, which said its mortgage-related writedowns may reach $11 billion this quarter, has fallen 39 percent since June on the New York Stock Exchange.
The one-week rate for euros was unchanged at 4.13 percent, the EBF said today. The rate for three-month credit in U.K. pounds dropped 12 basis points to 6.51 percent, the BBA said.
U.S. Stocks Fall; Morgan Stanley, Bear Stearns, Retailers Slump
Dec. 13 -- U.S. stocks dropped, led by banks and brokerages, on concern that a coordinated attempt by central banks in North America and Europe to relieve gridlock in credit markets will fail.
Morgan Stanley, Bear Stearns Cos. and Merrill Lynch & Co. led declines in financial shares after Lehman Brothers Holdings Inc. said some precautions against mortgage losses were ineffective. Home Depot Inc. and Target Corp. led a gauge of chain stores lower after the biggest surge in wholesale inflation in 34 years overshadowed a stronger-than-expected report on holiday sales.
The Standard & Poor's 500 Index lost 6.81, or 0.5 percent, to 1,479.78 at 2:51 p.m. in New York, trimming its yearly advance to 4.3 percent. The Dow Jones Industrial Average decreased 19.43, or 0.1 percent, to 13,454.47. The Nasdaq Composite Index fell 18.54, or 0.7 percent, to 2,652.6. About three stocks declined for every one that rose on the New York Stock Exchange. Benchmarks in Asia and Europe also slumped.
``Doing other things to inject liquidity really doesn't address the issue of broader economic weakness,'' said David Joy, who helps oversee $161 billion as chief market strategist for Riversource Investments LLC in Minneapolis. With financials, ``it's too early to step up and take a stand that these stocks are undervalued. If you dip your toe in the water, you could still get burned.''
The cost of borrowing euros stayed at the highest since December 2000, signaling the plan by the Federal Reserve and four other central banks to inject funds into the financial system isn't lowering borrowing costs and boosting lending.
`A Lot of Uncertainty'
Morgan Stanley, the second-biggest securities firm, lost 93 cents to $49.44. Merrill, the third largest, slumped $2.28 to $56.53. Bear Stearns, the second-biggest U.S. mortgage-bond underwriter, dropped $3.73 to $97.11.
Lehman Brothers lost 25 cents to $61.57. The largest U.S. underwriter of mortgage bonds said fourth-quarter investment banking revenue fell 3 percent to $831 million and fixed-income capital markets revenue declined. Net income fell 12 percent to $886 million.
``There will be a lot of people looking at their report to try to gain some insight into what might happen down the road with other brokerages and banks,'' said Ed Laux, head of U.S. trading at Cantor Fitzgerald & Co. in New York. ``There's still a lot of uncertainty and worry about valuations in the financial sector.''
Washington Mutual, Costco
Washington Mutual fell 38 cents to $15.68. The biggest U.S. savings and loan was cut to ``sell'' from ``neutral'' at Bank of America on concern credit quality may deteriorate further and it may have to raise funds. The brokerage also reduced its price estimate on the stock by 46 percent to $13.
Countrywide Financial Corp., the biggest U.S. mortgage company, lost 28 cents to $10.25. American International Group Inc., the largest insurer, slumped $1.55 to $56.66.
Financial companies in the S&P 500 are expected to report a 36 percent average profit drop in the fourth quarter, the worst performance among 10 industries, according to a Dec. 7 Bloomberg survey.
Prices paid to U.S. producers climbed twice as much as economists had forecast in November, pushed up by surging costs for fuel. Excluding food and energy, prices rose the most since February.
Target, the second-largest U.S. discount chain, fell 86 cents to $52.32 and Home Depot, the largest home-improvement retailer, dropped 99 cents to $27.50.
Retail Sales
Retail sales in the U.S. increased twice as much as forecast in November. The 1.2 percent increase, the biggest since May, followed a 0.2 percent gain the prior month, the Commerce Department said. Purchases excluding automobiles jumped 1.8 percent, the most since January 2006.
Costco Wholesale Corp., the largest U.S. chain of wholesale-warehouse stores, fell the most in two weeks on earnings that failed to top analysts' estimates. Costco slid $1.56 to $68.63. Net income was 59 cents a share in the first quarter, matching projections of analysts surveyed by Bloomberg.
Biogen Idec Inc. slumped $17.90, or 24 percent, to $57.98. The maker of drugs for cancer and multiple sclerosis said it will no longer pursue a sale and that its business plan is working. The biotechnology company put itself up for sale in October after billionaire investor Carl Icahn bid $23 billion.
Qualcomm
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, dropped $1.20 to $39.81 after Nokia Oyj won the first round of a patent fight. Administrative Law Judge Paul Luckern in Washington rejected Qualcomm claims that Nokia, the world's biggest maker of mobile phones, infringed patents for a technology that prevents dropped calls. He also said one of the three patents is invalid. The decision is subject to review.
Ciena Corp. fell $5.24, or 12 percent, to $36.88. The maker of network equipment forecast revenue for the current fiscal year will be $935.7 million, less than the average estimate of $949.2 million in a Bloomberg survey of analysts.
Dow Chemical Co. surged $2.97 to $44.72 after the largest U.S. chemical maker and Kuwait's Petrochemical Industries Co. said they will form a joint venture to make plastics and chemicals.
Honeywell International Inc. climbed $2.43, or 4.2 percent, to $60.17, the steepest gain in the Dow average. The world's largest maker of aircraft controls forecast higher 2008 profit as demand for plane parts and overseas sales of thermostats and security systems help overcome a U.S. housing slump.
BEST OF THE WEB TODAY
|
The Liberal Heart
The debate over the treatment of terrorist detainees is a highly emotional one, with liberal critics of the Bush administration expressing horror and outrage at the idea that terrorists might have been subjected to aggressive interrogation, which they insist meets the legal definition of "torture." What is behind this emotion? We would like to shoot down one possible explanation: that liberals are more compassionate than conservatives, more sensitive to human suffering.
To make this point, we turn to People v. Caudillo, a case decided in 1978 by the California Supreme Court. It is similar to the current torture debate in that it involved the application of an inexact legal standard to a situation in which a person was treated harshly by another. At the time, the court consisted of two justices appointed by a Republican, Gov. Ronald Reagan, and five appointed by Reagan's Democratic predecessor, Pat Brown, and successor, and Jerry Brown. It was the Republicans who sympathized with the victim, while the Democrats took a detached, legalistic approach.
On May 2, 1975, Daniel Caudillo accosted a woman, identified in the decision only as Maria, in an elevator of her apartment complex in Montebello, Calif. Caudillo covered Maria's mouth with his hand and held a carving knife to her throat. She tried to remove the knife, cutting two of her fingers in the process; later he cut her in the back of the neck.
Caudillo demanded to know if Maria recognized him. She did, but claimed she did not. He forced her out of the elevator and into a windowless storage room, where he removed her glasses, ordered her to raise her dress, and fondled her rear end. Eventually he forced her to admit him into her apartment. In explicit and brutal detail, the court describes what happened next:
She was pushed inside and blindfolded. After taking her to the bedrooms, defendant led her to the living room, where Maria heard him unzip his pants. He ordered her to undress. Defendant allowed Maria to keep on her panties, pantyhose and shoes; he directed her to "[t]urn around slowly." Then defendant, seated on the living room sofa, pulled Maria toward him, pushed her to her knees and inserted his penis in Maria's mouth. Maria gagged; she felt like vomiting. Then he ordered her to completely undress.
Defendant compelled Maria to stand, and inserted his fingers in her vagina. He asked her if she could get pregnant; she said she did not think so. Defendant then raped the victim.
Defendant asked Maria if she had a boyfriend. He said: "You better not lie to me. I know everything about you. I know what time you leave for work and I know what time you get home. I have seen you from afar and I have admired you for a long time." Maria stated that she had a boyfriend. Defendant wanted to know if Maria and her boyfriend engaged in sexual activity; Maria did not answer.
Defendant then inserted his penis in Maria's rectum. Maria pulled away, telling defendant she was going to be sick. Maria had diarrhea, and evacuated her bowels twice. Defendant kept insisting that Maria satisfy him.
Defendant again forced Maria to orally copulate him; she gagged and spit. He returned to the theme of whether or not she had recognized him; she continued to tell him she had not.
Defendant raped Maria for the second time, but could not ejaculate. He again forced her to orally copulate him, and ejaculated in Maria's mouth; Maria gagged, spit and vomited. Still not content, defendant again inserted his penis in Maria's mouth, wiping away his victim's vomit.
Finally, defendant pushed Maria to the center of [her roommate] Catherine's bed; Maria was still blindfolded, although loosely. He left the bedroom, returning several times to bring Maria her clothes, purse and wallet. He threw the wallet at her, and ordered her to sit up. Through the blindfold, she examined the wallet; money was missing. Defendant demanded more money, and Maria found more in the wallet, which she gave him. Defendant took it, saying "I'll owe it to you." He told her not to report his sexual attack upon her to anyone. "If you do report it to anyone it will be embarrassing for you only," said defendant. He threatened to kill her if she told anyone. Thereupon defendant departed, taking $60 of Maria's money with him.
One of the issues in the case was whether Caudillo had inflicted "great bodily injury" upon his victim. The two Republican justices, Frank Richardson and William Clark, agreed that he had. Richardson wrote for the two:
The victim was pushed, shoved, cut twice by a knife, raped, sodomized and abused to the point of vomiting, diarrhea and hysteria. Her neck wounds were, respectively, three inches and one and one-half inches long. Under no reasonable view of the evidence could the victim's injuries in this case be deemed either "trivial or insignificant."
By contrast, the notorious ultraliberal Chief Justice Rose Bird--who would be ousted by the voters eight years later for her refusal to uphold death sentences--argued that compassion for Maria had no place in applying this legal standard, and was so eager to make the point that she wrote a separate concurring opinion:
The offenses committed by appellant on the victim in this case were "outrageous, shocking and despicable," as the majority state. . . . However, personal repugnance toward these crimes cannot be a legitimate basis for rewriting the statute as it was adopted by the Legislature. It is precisely because emotions are so easily called into play in such situations that extra precaution must be taken so that this court follows the legislative intent and not our own predelictions [sic] or beliefs.
Our purpose here is not to reargue the legal merits of a nearly 30-year-old case, which in any event has been undone by subsequent legislation and court decisions. It is, rather, to point out that the liberal heart does not bleed indiscriminately, and that often liberal sympathy seems to flow in inverse proportion to that which is deserved.
We Will Bury You
"Palestinian officials warned of a humanitarian and environmental disaster in Gaza, due to a shortage of cement to build graves in which to bury the dead," reports the Saudi-owned, Dubai-based Al-Arabiya network. Naturally, the network blames the Jews:
"The situation in Gaza is tragic," said Deputy Minister Abdullah Jarboa of the Palestinian Ministry of Endowments and Religious Affairs, according to Quds Press. . . .
After the Islamic Hamas movement took control of the poor and densely-populated enclave in mid-June, Israel closed the Gaza crossings to all but essential food products. . . .
Jerboa pleaded with the International Community, the Arab League, and the Organization of Islamic Conference to exert pressure on Israel to lift the embargo and allow food, medicine, and cement into the strip.
It hardly needs saying that if Hamas gave up its campaign to destroy Israel, the crossing would open in a New York minute. But the reason this story caught our attention is because of the contrast with that infamous McClatchy headline from a couple of months ago: "As Violence Falls in Iraq, Cemetery Workers Feel the Pinch."
The Palestinians must be wishing they could come up with a way of persuading America to invade Gaza.
Those Nasty Republicans!
You almost have to admire the chutzpah described in this report from the Associated Press:
A top adviser to Hillary Rodham Clinton's campaign said Wednesday that Democrats should give more thought to Sen. Barack Obama's admissions of illegal drug use before they pick a presidential candidate. . . .
Bill Shaheen, a national co-chairman of [Mrs.] Clinton's front-runner campaign, raised the issue during an interview with The Washington Post, posted on washingtonpost.com. . . .
"It'll be, 'When was the last time? Did you ever give drugs to anyone? Did you sell them to anyone?' " said Shaheen, whose wife Jeanne is the state's former governor and is running for the U.S. Senate next year.
"There are so many openings for Republican dirty tricks. It's hard to overcome," Shaheen said.
It is true that Obama has acknowledged using marijuana and occasionally cocaine as a "young would-be black man." If this disqualifies him in the eyes of some voters, so be it. But Shaheen (whose comments, it should be noted, Mrs. Clinton's campaign has disavowed) has managed to suggest, with no substance whatever (you'll pardon the pun), that Obama was a drug dealer--ostensibly so as to raise the specter of Republican dirty tricks.
If we thought Mrs. Clinton and her people would be this vicious to America's enemies, we'd almost be inclined to vote for her.
25, the New 17
From USA Today:
Once upon a time, 18- to 25-year-olds were considered adults.
That's a fairy tale now, say most parents of college students, and their kids agree in a new study that confirms "growing up" comes later.
Only 16% of mothers and 19% of fathers say their children this age have reached adulthood. And their kids don't dispute it: Just 16% consider themselves grown up in the online survey of 392 college students and their 590 parents.
This study is good news for Hillary Clinton, whose chief opponent, Barack Obama, is counting on the "youth vote" to carry him to the Democratic nomination.
Wannabe Pundits
OK, you'll never guess what this one is about:
We already have a president who has no evident intellectual curiosity beyond his pre-established worldview.
No, not the Bowl Championship Series, but music education! It seems that conservatory students these days are interested only in the music of the past 60 years, and Mark N. Grant of NewMusicbox.org isn't happy about it and doesn't like President Bush much either.
No Isle Left Behind
An Associated Press story on global warming has a curious quote:
"It is a story of untold human dimensions, of people becoming environmental refugees," Grenada's Angus Friday told the hundreds of assembled delegates.
Some islands are already beset by encroaching seas, he said, adding, "No island should be left behind."
We guess Friday is in favor of global warming. After all, if the seas rise high enough, no island will be left behind.
These Developments Ought to Revolutionize Cartoons
- "Japanese Scientists Create Mice With No Fear of Cats"--headline, Guardian (London), Dec. 12
- "SKoreans Clone Cats That Glow in the Dark: Officials"--headline, Agence France-Presse, Dec. 12
Especially if You're Allergic to Date Palms
"Beware Islamist Plants in Debates"--headline, Investor's Business Daily, Dec. 12
Summer Ends, Poor Hardest Hit
"Steep Heating Costs Hit Neediest"--headline, USA Today, Dec. 13
But You Can Call Her 'Sara'
"New Leader Named for Sarasota Housing Authority"--headline, Sarasota (Fla.) Herald-Tribune, Dec. 13
Talk About Nontraditional Casting!
"Hannah Montana to Play Joe Louis"--headline, Detroit News, Dec. 12
Hannah Montana: 'I'm Not Joe Louis'
"Tim Robbins: 'I'm Not Oprah' "--headline, New York Times Web site, Dec. 12
News of the Tautological
"DA Morgenthau May or May Not Retire Early"--headline, Gothamist.com, Dec. 12
News You Can Use
- "Senator's Strip Tip: Wear Clean Undies"--headline, Sydney Morning Herald, Dec. 12
- "Pregnant? Backache? Thank Evolution"--headline, Reuters, Dec. 12
- "Stop the Presses: Sex Is Good for You"--headline, Chicago Sun-Times, Dec. 12
Bottom Stories of the Day
- "Michael Jackson May Tour to Pay Debts"--headline, FoxNews.com, Dec. 12
- "Toledo Mayor Can Bring Dog to Work"--headline, Columbus Dispatch, Dec. 12
Book Fair
Reader comments on the so-called fair tax continue to roll in. Jim Bassi, a California florist, doesn't appreciate the idea of being conscripted to replace the IRS:
I am a retailer in San Diego, and this comment just cracks me up: "First, the kind proprietor of the store would lower her price $81.30 because, well, without the income tax why wouldn't she?"
Where is the connection between income taxes and my markup? The product still costs the same, and I have a gross margin I want to protect. Am I supposed to decrease my margins because (under Huckabee's plan) I am now a tax collector for the federal government? I already have problems (philosophically) being an unpaid tax collector for the state. Sales taxes are not figured into the price of anything, they are applied on top of the purchase.
If you take this flimflam at face value, I sell you a product at $100 for which I paid $50, my gross margin is 50%. However, if I sell the same product, but take $23 of that $100 and give it to the feds, my margin is now 27%, in effect the government is mandating my gross margins on any product I sell. That 27% gross margin has to cover a heck of a lot of overhead, and unless you're Wal-Mart or Target, the volume is just not there for small businesses.
Additionally, this does not take into account any expenses I incur just figuring out how much I will owe the state and the feds.
Really, it takes a politician (or someone else who's never been in charge of a payroll) to come up with this stuff!
In fairness, the fair tax fans' notion is federal taxes on income, payroll, corporate profits and other things make up a substantial portion of the cost of bringing an item to market. The repeal of these "embedded" taxes, the argument goes, would reduce pretax prices, both wholesale and retail.
It is true that companies pass costs, including taxes, on to their customers, so that eliminating taxes along the supply chain ought to lead to lower prices at retail. But the fair tax promises simply cannot add up. Workers would supposedly see their take-home pay rise to 100% of gross income without a commensurate decline in purchasing power owing to the new sales tax, and on top of it all the government would send "prebate" checks to poor people. Where is all the money supposed to come from? Abolishing the IRS? That would save perhaps $12 billion, or $40 per American, annually.
What's more, this argument gives the lie to the pro-fair-tax claim that kicked off this discussion Monday: that it would force pimps, prostitutes, drug dealers and other criminals, who now escape taxes, to pay them when they spend their money. Don't bad people pay "embedded taxes" too?
We got a kick out of this email from reader Larry Colson:
I was at a Borders bookstore in Saratoga Springs, N.Y., last night and discovered Neal Boortz's "The Fair Tax Book" on the "specials" rack near the front of the store for $2.99. I didn't stop to look at the original price, but at Amazon.com, the "buy new" comparison price was $14.95.
One could surmise that it's the idea itself that lead to this drastic price reduction--it's now 20% of it's original cost--so maybe it really does work. Then again, maybe it's just that tricky supply/demand curve.
But it turns out the joke is on us. We went to Amazon to check the price of our book, "Presidential Leadership: Rating the Best and the Worst in the White House" (available from the OpinionJournal bookstore), released 3 1/2 years ago with a cover price of $26. Imagine how deflated we were to read this:
70 used & new available from $0.01
ONE CENT?! Of course, that doesn't include tax.
(Carol Muller helps compile Best of the Web Today. Thanks to Larry Bernheim, Bruce Goldman, Royal Dellinger, Ray Hendel, Bill Schweber, Paul James, Steve Karass, Michael Driscoll, Laurence Glavin, R. Sherrod, Ken Frazer, Michael Segal, Monty Krieger, Paul Burns, Chris Stickels, Rod Pennington, Kerry O'Connell, Mike Stevens and Paul Martin. If you have a tip, write us at opinionjournal@wsj.com, and please include the URL.)
No comments:
Post a Comment