Sunday, 5 October 2008


Cary G Dean.

By Madlen Read
Friday October 3, 6:24 pm ET

After House OKs bailout, credit markets tighten on fears the plan isn't enough to help economy

The credit markets finally got a bailout bill, but the stranglehold hasn't let up -- a troubling sign that lenders and investors believe the package will only be a baby step in the long road to economic recovery.

The credit markets, where companies go to get cash loans, have seized up since the bankruptcy of Lehman Brothers Holdings Inc. and in anticipation of the $700 billion plan initially voted down by the House.

The House passed a revised version of it Friday following the Senate's approval earlier this week, but anxiety about its effectiveness kept demand for Treasury bills high and nearly nonexistent for other types of debt.

Overall, market participants have begun regarding the rescue plan as a medicine for what's ailing the financial system.

"But not a cure-all".

"At best, we can hope that it stems some of the more intense risk from the credit crisis".

"It prevents things from spiraling out of hand here," said JPMorgan Chase economist Michael Feroli.

Some are worried, though, that the plan will not work at all.

"Nobody knows how it's going to succeed," said Howard Simons, strategist with Bianco Research in Chicago.

"It seems the American public had better sense than Wall Street and Washington the American public said, don't throw good money after bad."

The Labor Department said employers cut payrolls by 159,000 in September, the largest loss in more than five years, while unemployment remained at 6.1 percent.

Layoffs are likely to keep piling up if it remains tough to find credit.

Spectrum Yarns Inc., a North Carolina textile company, said it closed two plants and laid off 200 workers this week because it got turned down by a North Carolina bank, a New York finance company, and several private lenders.

On Friday, the London Interbank Offered Rate, or LIBOR, for three-month dollar loans rose to 4.33 percent from 4.21 percent Thursday.

That bank-to-bank lending rate has been rising all week, showing that banks are growing less and less willing to lend out their cash for longer than overnight.

That overnight rate is now below the Fed's key bank-to-bank overnight lending rate, known as the target fed funds rate, of 2 percent.

It appears that central banks' decision to ramp up their lending to financial institutions over the past couple weeks is having a positive effect.

But that's little solace to borrowers who need a loan for longer than overnight.

"There's really no theme except the theme of survival," said John Spinello, bond strategist at Jefferies & Co., referring to the constricted trading in the credit markets Friday.

The stock market sank after the House passed the plan, sending investors back into longer-term Treasurys.

The 2-year note rose 1/32 to 100 26/32, with a yield of 1.58 percent, down from 1.62 percent late Thursday.

The 10-year note rose 7/32 to 103 10/32, and yielded 3.60 percent, down from 3.64 percent.

The 30-year bond rose 1 3/32 to 107, and yielded 4.09 percent, down from 4.16 percent.

AP Business Writer Emery P. Dalesio in Charlotte, N.C., AP Business Writer Dan Strumpf in New York, and Associated Press Writer Judy Lin in Sacramento contributed to this report.

(And my
little contribution to this report Folk's is, look's like we'r all still up $hit creek without a paddle with a tide of bill's coming in)!!!

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