Meanwhile, in an alternative universe

November 5, 2008, 12:32 pm

Meanwhile, in an alternative universe

Known as the Wall Street Journal opinion pages,

The treatment President Bush has received from this country is nothing less than a disgrace. The attacks launched against him have been cruel and slanderous, proving to the world what little character and resolve we have. The president is not to blame for all these problems. He never lost faith in America or her people, and has tried his hardest to continue leading our nation during a very difficult time.

Our failure to stand by the one person who continued to stand by us has not gone unnoticed by our enemies. It has shown to the world how disloyal we can be when our president needed loyalty — a shameful display of arrogance and weakness that will haunt this nation long after Mr. Bush has left the White House.

Yes, George W. Bush’s status as the most disliked man ever to occupy the White House shows that America was not worthy of him. And attacks on Bush gave aid and comfort to his enemies — unlike the firehose of abuse that will be directed against President Obama, which will of course be an expression of true patriotism.

Libor's Biggest Drop Fails to Match Fed, Spur Loans (Update4)

By Gavin Finch

Nov. 5 (Bloomberg) -- Credit markets are still creaking even after the biggest decline on record in the rate banks say they charge each other to borrow dollars.

The London interbank offered rate, or Libor, for three- month loans fell to 2.51 percent today, from 4.82 percent on Oct. 10. The rate is still 151 basis points more than the Federal Reserve's target interest rate for overnight bank loans, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007.

``Banks are cutting back, the economy is in a deepening recession and in that environment, I don't think banks are going to become a lot more willing to extend credit soon,'' said Jan Hatzius, chief U.S. economist in New York at Goldman Sachs Group Inc., the world's biggest securities firm.

Government bailouts totaling about $3 trillion, interest- rate cuts around the world and unprecedented cash injections by central banks drove Libor, the benchmark for $360 trillion of securities worldwide, lower in the past month without convincing financial institutions to lend. About 85 percent of U.S. banks tightened lending standards on loans to large and mid-size companies in the past three months, the Fed said on Nov. 3, the highest since the survey began in its current format in 1991.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said yesterday conditions remain ``highly challenging.'' Mike DiGiovanni, General Motors Corp.'s chief sales analyst, said a day earlier the scarcity of lending led to the automaker's worst month since World War II. The U.S. economy, which contracted 0.3 percent in the third quarter, may stay in a slump through 2009, Fed Bank of Dallas President Richard Fisher said Nov. 3.

Lehman Failure

The credit-market seizure that began after BNP Paribas SA halted withdrawals on three hedge funds last year worsened when Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15, driving dollar Libor up 200 basis points, or 2 percentage points, in the next 25 days to the highest level in 2008.

The difference between Libor and the overnight indexed swap rate, a measure former Fed Chairman Alan Greenspan uses to gauge the state of money markets, was at 201 basis points today. That compares with 87 basis points on the last day before Lehman's collapse and an average 11 basis points in the five years before the crisis started.

``We're not out of the woods yet,'' said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden- Wuerttemberg, Germany's biggest state-owned lender. ``Libor fixings are improving but it's too early to say that this pattern is being replicated in the actual money markets.''

Global Benchmark

Libor, overseen by the British Bankers' Association, an unregulated trade group based in London, is the benchmark rate for financial contracts from derivatives to company loans and mortgages, equating to about $53,500 for every person in the world.

It's set by a panel of as many as 16 banks in a daily survey where members estimate how much it would cost them to borrow in 10 currencies for terms from a day to a year. The Bank for International Settlements said in March some lenders may have ``manipulated'' rates to keep from appearing like they were in trouble.

Central banks have driven money-market rates lower by offering financial institutions as much dollar funding as they need and acting in concert to slash interest rates. The Reserve Bank of Australia cut its benchmark rate 75 basis points yesterday, joining policy makers in China, Hong Kong, India, Japan and the U.S. in reducing borrowing costs in the past week. The European Central Bank and Bank of England will cut their key rates by 50 basis points tomorrow, according to Bloomberg surveys of economists.

`Novocain to Markets'

While cutting the U.S. target rate during the past 13 months to 1 percent from 5.25 percent, Fed Chairman Ben S. Bernanke has created six loan programs channeling at least $700 billion in cash and collateral into money markets as of Oct. 22.

``The Fed is trying to give Novocain to the markets,'' said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. ``It's all about buying time.''

Central bank operations helped the MSCI World Index of stocks rise almost 20 percent since falling to a five-year low on Oct. 27. Company borrowing costs have declined, with yields on the highest-ranked 30-day commercial paper, or CP, falling today to the lowest level since June 2004. The market, used by companies to cover daily expenses, grew last week for the first time since Lehman's collapse.

Limited Impact

Cash injections have had a limited impact because instead of lending the extra money received in auctions, some financial institutions are holding it on deposit with central banks. Banks lodged a record 296 billion euros ($381 billion) overnight with the ECB yesterday. The daily average in the first eight months of the year was 427 million euros.

``The money-market players remain cautious but we're at least seeing an improvement and that's going to continue,'' said Vincent Chaigneau, head of foreign-exchange and interest rate strategy at Societe Generale SA in London. ``Transactions remain limited and we still have a dislocated market, but we're seeing a significant pullback'' in rates, he said.

In its quarterly Senior Loan Officer Survey, the Fed said about 95 percent of U.S. banks raised the costs on credit lines to large firms, and ``nearly all banks'' increased the spread on borrowing rates over the cost of funds on loans to firms from July. About 70 percent of U.S. banks indicated they tightened standards on prime mortgage loans.

No Benefit

Banks may not pass all of the benefits of lower interest rates on to consumers and businesses. Banks around the world are re-evaluating the price they put on risk, raising the cost of loans when compared with levels of pervious years, said David Hodgkinson, chief operating officer of HSBC Holdings Plc, Europe's biggest bank.

``Credit has to be priced appropriately to reflect the risk,'' Hodgkinson said in a Nov. 3 interview in Abu Dhabi. ``If interest rates are brought down significantly, then rates for borrowers will come down. But I'm not going to say it's absolutely linear because it depends on the particular transaction and the risk.''

In another sign that lending remains restricted, corporate bond sales in Europe dropped in October to the lowest level this year, with 25.4 billion euros ($32.3 billion) of notes sold, compared with 35.9 billion euros in September, according to data compiled by Bloomberg. U.S. investment-grade offerings fell to $21.6 billion, the least since July 2002.

``No one wants to lend because they are still wary of values of bank balance sheets, and no one wants to borrow from the money market because they can borrow directly from the central banks,'' said Alessandro Tentori, a fixed-income strategist at BNP Paribas SA in London. ``In effect, the measures taken by central banks are not providing incentives to go into the interbank market.''

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

Last Updated: November 5, 2008 10:20 EST
U.S. Economy: ISM Services Index Slumps to Lowest on Record

By Timothy R. Homan

Nov. 5 (Bloomberg) -- Service industries in the U.S. contracted the most on record in October as credit dried up and consumers reined in spending.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, fell to 44.4, below economists' forecasts and the worst result since records began in 1997. A private survey indicated that companies axed 157,000 workers last month.

Spending by consumers and businesses is likely to keep declining into the year-end holiday season as loss-riddled banks make it more difficult to borrow. The economy's deterioration contributed to the wave of voter discontent with Republican rule that swept Illinois Senator Barack Obama to victory in the U.S. presidential election yesterday.

``The recession is getting deeper,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York. ``Caution on the part of businesses will lead to bigger declines in employment and investment,'' he said, predicting that analysts will lower their projections for the government's October employment report on Nov. 7.

Treasuries were little changed, with benchmark 10-year notes yielding 3.73 percent at 10:42 a.m. in New York. The Standard & Poor's 500 Stock Index was down 0.9 percent at 996.54.

Economists forecast the Tempe, Arizona-based ISM's index would fall to 47 from 50.2 in September, according to the median of 69 projections in a Bloomberg News survey. A reading of 50 is the dividing line between growth and contraction.

Manufacturing Slump

A report from the institute earlier this week showed manufacturing in the U.S. shrank in October at the fastest pace in 26 years as companies trimmed orders.

Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a report from ADP Employer Services today also showed. Firings spread from automakers, financial and housing-related companies to retailers and other services as the economic slump deepened.

Even bigger declines in payrolls are likely in train. Employers announced 112,884 job cuts last month, up 79 percent from October 2007 and the most in almost five years, a report from Chicago-based Challenger, Gray & Christmas Inc. said today.

The ISM's employment index dropped to 41.5 from 44.2 in September. The institute's business activity index fell to 44.2 from 52.1, while its new orders gauge decreased to 44 from 50.8.

Less Inflation

The group's measure of prices paid by non-manufacturing businesses fell to 53.4, the lowest level since July 2003.

Energy costs in October continued to recede from July's record highs. The average price for a barrel of crude oil last month was $76.72, compared with $103.76 a month earlier.

While factories have cut payrolls every month since July 2006, other businesses have joined in reducing employment this year. Service industries cut 82,000 workers from their payrolls in September, the fourth straight monthly decline, the Labor Department said last month.

The U.S. probably lost 200,000 jobs in October, bringing the total decline in payrolls so far this year to nearly 1 million, economists surveyed by Bloomberg forecast a Labor Department report Nov. 7 will show. The unemployment rate may jump to its highest level in more than five years, the survey showed.

The reduced availability of credit, along with the loss of jobs is likely to hurt spending during the holiday shopping season, the largest source of revenue for most stores.

Spending Slump

Circuit City Stores Inc., the second-biggest electronics retailer, said this week it will close 155 American stores, reducing the company's workforce by 17 percent in order to conserve cash.

``Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply,'' James Marcum, chief executive officer of the Richmond, Virginia-based company, said in a Nov. 3 statement. ``The weakened environment has resulted in a slowdown of consumer spending.''

Such spending, which comprises about 70 percent of the U.S. economy, dropped at a 3.1 percent annual pace in the third quarter, the first decline since 1991 and the biggest since 1980, the Commerce Department said Oct. 30.

The slowdown caused the economy to contract last quarter at the fastest pace since the 2001 recession.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: November 5, 2008 12:12 EST