Interest Rate Start To Fall But Will This Help?

With bailouts galore going on, The Banking industry in melt down and some countries such as Iceland possibly about to be declared bankrupt, the latest news is that the American interest rate has been cut today. Will this help? Will it be passed onto the borrower? Will we begin to have more money in our pockets?

The interest rate cut has also spread to other countries but is this a sign of panic. Surely we should be looking at safeguarding normal family values rather than high rolling city bankers.

On the other hand it will make things easier for manufacturers which will hopefully mean more job security and less unemployment

Looking at this report from the experts I don't think we will notice any difference!

Here is a report from Bloomberg

Oct. 8 (Bloomberg) -- The cost of borrowing in dollars overnight in London soared for a third day before central banks around the world lowered interest rates in a joint effort to restore confidence to the global financial system.

The London interbank offered rate, or Libor, that banks charge for such loans jumped 144 basis points to 5.38 percent, the British Bankers' Association said today. It's the second day the rate has risen by more than 100 basis points. It was at 2 percent on Oct. 3. The one-week dollar rate climbed 35 basis points to 4.52 percent, the highest level since December. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record and Treasury bills rose even after the coordinated rate cuts.

``This smells like panic to me,'' said Marius Daheim, a senior bond strategist in Munich at Bayerische Landesbank, Germany's second-biggest state-owned bank. ``We don't think this is going to do the trick with freeing up liquidity in the money markets. Banks will still hoard liquidity to meet future funding needs and rate cuts aren't going to do anything about that.''

Interbank lending rates have soared as financial institutions store cash to meet anticipated funding needs, defying the efforts of central banks to revive the frozen credit markets. The Federal Reserve said it cut the target rate for overnight loans by a half point to 1.5 percent today. The central banks of the euro region, the U.K., Sweden, Switzerland and China also reduced rates.

Coordinated Action

``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' the central banks said in a joint statement. ``Some easing of global monetary conditions is therefore warranted.''

The U.K. said earlier that it plans to invest about 50 billion pounds ($87 billion) in an unprecedented step to stave off a collapse of the country's banking system.

The deepening credit crisis forced the U.K. to join the U.S., Ireland, Iceland, Belgium and Spain in rushing out untested bailout measures to save banks. As part of the plan, Prime Minister Gordon Brown's government will buy preference shares, and the Bank of England will make at least 200 billion pounds available for banks to borrow under a so-called special liquidity plan, the Treasury said today in a statement.

Barclays Plc and Royal Bank of Scotland Group Plc, the U.K.'s second- and third-biggest banks, said they plan to participate in the government rescue.

Dollar Bids

The Frankfurt-based ECB said today it provided banks with $70 billion of one-day loans, up from $50 billion yesterday. Banks bid for $122 billion. The 9.5 percent marginal rate at which 96 percent of the funds were borrowed compares with today's Libor of 5.38 percent and the Federal Reserve's target rate of 1.5 percent.

The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, increased to 324 basis points today. It was at 167 basis points two weeks ago and 81 basis points a month ago.

The yield on three-month U.S. bills slid 21 basis points to 0.55 percent, signaling investors are still seeking the safest government securities.

Libor, set by 16 banks in a daily survey by the British Bankers' Association at about noon in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. Member banks provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Euribor, set in a survey of more than 30 institutions by the European Banking Federation, is published about 90 minutes earlier.

Ted Spread

President George W. Bush signed a $700 billion U.S. bailout bill into law last week to help stem the crisis, which has claimed financial companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc. The legislation enables the government to purchase tainted assets from institutions. European leaders meeting in Paris over the weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was at 402 basis points, the most since Bloomberg began compiling the data in 1984.

Writedowns and losses worldwide tied to the U.S. mortgage market have reached $593 billion since the start of last year, according to data compiled by Bloomberg.

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