Global Credit Frozen:
Top Banker Calls it 'Heart Attack'
Sept. 5, 2007 (EIRNS)The interbank lending system has come to a virtual halt, reports the London Financial Times in a front-page story headlined "Tough Test for 'Heart Attack' Markets." A leading banker echoed words previously only heard from LaRouche, that if the credit stays frozen, "the patient is going to die."
Banks will not lend to each other for fear that the collateral being put up is next to worthless. The phenomenon is global, says an analyst from UniCredit. Parts of the interbank lending market "have frozen as institutions scramble to raise capitaland hoard it," the Financial Times reports London bankers as saying.
The banker and chairman of International Capital Markets Association described the situation as a financial "heart attack."
"If we stay stuck, the patient is going to die," said Hans Joerg Rudloff, who is also chairman of Barclays Capital.
Even the famous "helicopter money" which Federal Reserve chief Ben Bernanke once said he could sprinkle down to solve any crisis, is not working. Last month, the Federal Reserve announced that it would accept any sort of junk commercial paper as collateral from banks to issue them new credit. But the market value of such paper has collapsed, and with it the amount the banks can borrow from the Fed.
The London Interbank Rate (Libor), which sets the rate for interbank lending worldwide, has risen to 6.8%, a record 1 percent higher than the Bank of England's base rate. But, in reality, no money is being lent at any rate. To try to stem the crisis, the Bank of England today offered to pay interest on reserves which commercial banks keep in its account!