THE LAST TEMPTATION OF THE RIGHT:

World leaders look to US for salvation as economies near abyss (AFP, Sep 30, 2008)

World leaders called on the US government to take action to stave off global financial collapse Tuesday after Congress rejected a 700 billion dollar bailout in a move which stunned global markets.

Japan sweats as U.S. rescue stalls (HIROKO NAKATA, 10/01/08, Japan Times)

The uncertainty swirling around the financial crisis in the United States has sparked concerns in Japan that more bad news is on the way for exporters, consumption and the economy, analysts said Tuesday.

The U.S. House of Representative's shocking rejection of a $700 billion rescue plan Monday sent Wall Street into its worst single-day plunge — on a points basis — and triggered a 483-point selloff in Tokyo stocks Tuesday.

"The situation is getting quite serious," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "All we can do is to wait for an amendment to the U.S. bailout plan."

The Low-Down on Libor: Why its Surge Signals Desperation in the Credit Markets (Katy Marquardt, 9/30/08, US News)

After the rejection of the bailout bill by the House of Representatives, banks hoarded cash, driving Libor up to 6.88 percent. A week ago, Libor was at 2.95 percent. (Normally, it's slightly more than the Federal Reserve's target fed funds rate.) Points out MarketBeat: "It's more than a little ironic that while investors are buying banks' stocks—shares were up sharply across the sector—banks themselves were unwilling to buy each others' shortest term debt. Banks are so desperate for funds that they paid 11% for $30 billion in overnight funds from the European Central Bank, up from 3% just Monday."

The Associated Press answers the million-dollar question: So how does this affect my life?

A. More than half of U.S. adjustable rate home loans are tied to Libor, so a recent increase in this benchmark rate mean monthly mortgage payments will rise for affected homeowners if the rise is sustained. A typical adjustable rate home loan will adjust based on the six-month Libor, plus 2 to 3 percentage points. Plus, many home equity lines of credit, small business loans and student loans also use Libor as an index. Student loans, for example, can be set based on the three-month Libor rate plus, say, 4 percentage points or the one month Libor rate, plus 9 percentage points.

Meanwhile, The "TED spread"—which represents the difference between what banks charge each other to borrow for three months and what three-month U.S. treasuries yield—surged to its highest level in more than 25 years Monday.

Much as they'd like to crawl into a hole and avoid the fact, with great power comes great responsibility.

Posted by Orrin Judd at September 30, 2008 3:11 PM