Fears about subprime collapse becomes reality as U.K. banks increase borrowing costs

Source: Associated Press

Fears about subprime collapse becomes reality as U.K. banks increase borrowing costs
Published: September 4, 2007

LONDON: Fears that the U.S. subprime mortgage market collapse will impact heavily on Britain began to feed into reality Tuesday as banks increased the cost of lending amongst themselves to the highest rate in nearly nine years.

The jump in key three-month interbank lending rate puts the Bank of England under pressure to tackle the growing crisis. Unlike its counterparts in Europe, Asia and the United States, the British central bank has so far rejected calls to inject cash into markets.

The inter-bank rate, or LIBOR, now sits at 6.7975 percent, more than a full percentage point above the 5.75 percent base rate and barely shy of the central bank's emergency lending rate of 6.75 percent, indicating that confidence is very low. The last time LIBOR was at such high levels was after the collapse of the U.S. hedge fund Long Term Capital Management in 1998.

The current rate reflects banks' reluctance to loan funds to rivals at anything but a premium until they know the extent of the crisis — allowing them to hold on to their own liquidity, signifying circumspection about potential borrower's exposure to the U.S. subprime mortgage market. Companies use LIBOR to hedge currency exposure or change financing through interest swaps, leading to concerns about what happens when existing arrangements hit maturity.

<snip>



Read more: http://www.iht.com/articles/ap/2007/09/04/business/EU-FIN-COM-Britain-Subprime-Fallout.php

continue their cheer leading routines and pretend everything will SOMEHOW miraculously correct the ongoing sub-prime meltdown and tightening credit situation. Corporate welfare in the form of cash injections from central banks is ONLY a band-aid where a tourniquet needs to be applied. The BEST thing ANYONE can do right now is NOT take on more debt, specially till it is clearly understood where this whole U.S. economic and financial situation is really going.