At the time of going to press, the wrangling over the US Senate’s decision of whether it will inject $700bn into the US financial system continues, although it was increasingly likely that it would be vetoed, or at least only accepted with serious revisions. It is unsurprising that it is not a snap decision, as 700 billion is a lot of money in any currency. But it is made more unpalatable by the fact that if they make the wrong call on this, the Senators will find themselves banished to the political wilderness.
American politicians are especially mindful of how history will judge them and want assurances that this move will have the desired result and will either not fail to have an effect or prove insufficient.
It might not be a panacea for all financial institutions but $700bn would certainly put some confidence back into the markets, and that should help not only those lending institutions left in the US, but also those in the UK.
Over here, three month Libor is now at a year-long high because lenders are so terrified about lending to each other that they are queuing up at the Bank of England for their cash handouts rather than borrowing from each other. This is having an immediate and negative knock-on effect on mortgage product rates and criteria, and the Bank of England is being forced to extend the amount of money available.
The truth is that it needs a co-ordinated approach from all the major central banks and governments if we are to stop this death by a thousand cuts.
Fortunately, the Church of England has now got involved, and said that short-selling is bad. I guess that clears that up then. Though perhaps it might have been better if the Church itself had not profited from these measures in the past few years. n
