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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Saturday, November 8, 2008 Investors still leery of credit troubles Associated Press NEW YORK -- The credit markets revealed both good news and bad this week: There's finally more cash in the financial system, but people aren't putting it to use yet. Bank-to-bank lending rates have fallen for 20 straight days -- suggesting that financial institutions have grown much more willing to lend to one another. But the decline in the rate isn't being met with the market enthusiasm many thought it would; investors, understandably, still don't want to take on risk with the economy in such a perilous state. The corporate bond markets showed a few signs of thaw this week, but remained too tight for most companies to take advantage of. The securitization market -- where banks repackage consumer debt into bonds that can be traded -- is at a virtual halt. Meanwhile, more individuals are losing their jobs, raising the probability that people will fall further behind on their debt payments. "There are no credit-worthy borrowers," said Daniel Alpert, managing director at the investment bank Westwood Capital. "You can throw all the money you want at the banks." Central banks around the world have pumped money directly into banks, initiated currency swaps, slashed interest rates, guaranteed various types of deposits and debt, and paid interest on both required and excess funds in reserves. Those efforts have helped the three-month London interbank offered rate tumble to a four-year low of 2.29 percent Friday, down from 3.03 a week ago and down from 4.82 percent on Oct. 13 -- when fear about lending to financial institutions was peaking in the wake of Lehman Brothers Holding Inc.'s bankruptcy and American International Group Inc.'s takeover by the government. Bringing down this rate was necessary, analysts say. But if the first phase of the financial crisis was a credit freeze, the second phase is a business standstill -- and some say that phase has begun in full force. For all types of companies -- from lenders to manufacturers to retailers -- the goal right now is to "preserve capital, above all else," Alpert said. This is the big reason employers slashed 240,000 jobs in October, after cutting 284,000 in September. And banks are in no hurry to take risks, given that so many sources of revenue during the housing boom have dried up. The only public term issuance of asset-backed securities in October was a $500 million deal from AmeriCredit, according to Barclays Capital's fixed income research, and there were no new issuances of securities backed by credit cards or student loans for the month. Since the beginning of the year, issuance is down 31 percent for securities backed by cards; down 45 percent for securities backed by auto loans; and down 41 percent for securities backed by student loans, Barclays said. READER COMMENTS Be the first to comment. You must be a registered user and verify your e-mail address to post comments to blogs or articles on HeraldNet. To register, click here. To read other terms and conditions, click here. Log out

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