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How Can We Bring Down Libor

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by Felix Salmon
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Oct 09 2008 9:32am EDT

How Can We Bring Down Libor?

When banks get nationalized, they become much safer, right? So what on earth is overnight Libor doing at 5.09%, and three-month Libor at 4.75%? The TED spread is a new record high, 413bp, making all its previous scary spikes look like mere foothills in comparison.

Yves Smith thinks this might all be connected to tomorrow's Lehman CDS auction, and says that "there may be some relief if the financial community passes this test". I do hope so: every day that Libor remains broken is a day that thousands of debt instruments reset to silly levels.

In fact, I wouldn't be averse to measures specifically designed to bring down Libor, even if interbank lending volumes remained near zero. At this point, Libor is moving from being a symptom of the crisis to being one of its central causes.

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