From the Wall Street Journal this morning- this is worth watching:
A sharp and unexpected rise in a widely used interest rate is threatening to add billions of dollars to the interest bills of homeowners, companies and other borrowers around the world.
The London interbank offered rate jumped for the second straight day Friday — two days after the British Bankers’ Association, which oversees the calculation of the interest rate, said it was investigating the borrowing rates that banks had been providing to it.
The BBA started its review amid growing concerns among bankers that their rivals weren’t reporting their true high borrowing costs, for fear of signaling to the market they were desperate for cash. John Ewan, a manager of the Libor system at the BBA, said Friday the association continues to believe in the accuracy of the Libor system.
What’s the big deal if the LIBOR’s rise is sustained?
The past week’s rise of Libor could add roughly $18 billion in annual interest costs on that corporate debt, or about $100 to the monthly payment on a $500,000 adjustable-rate mortgage loan.
And there’’s the effect on commercial real estate to consider as well:
In commercial real estate, the rise in Libor is bound to have a chilling effect, because many developers borrow heavily using floating-rate debt linked to Libor. Until recently, declining rates had benefited borrowers, but some lenders were growing wary. Banks have started to include a floor in Libor-linked loans, said Peter Fitzgerald, chief financial officer at Radco Cos., an Atlanta developer. That means borrowers’ savings would be limited if Libor continued to sink, but borrowers can be hit by the latest rise.
"If Libor were at 4% instead of under 3%, there would be a disaster that would take years to unwind," he said.
Most of the adjustable rate mortgages originated in the US use the LIBOR as their index. Since the majority of those loans begin the interest rate resets in July……the gamblers are about to take another hit.
“… or about $100 to the monthly payment on a $500,000 adjustable-rate mortgage loan.”
While adjustable-rate and interest-only mortgages appear to be less available, I hope that nearly all house loan borrowers use fixed-rate, fully-amortizing mortgages now and in the future. Gambling on interest rates fueled gambling on house appreciation and the resulting bubble/bust.
Let the Libor jump to 56%…I have a fixed rate
The question isn’t, how corrupt is Libor? The question is, how long will governments allow Libor to go on being corrupt? Answer: as long as governments are willing to monetize private debt.
Once Andrew Mellon steps in and whispers, “liquidate liquidate liquidate,” this will be over too.
Step by step, government is withdrawing from a fatally sick society. This will surprise our suburban trough-feeders–that is, everyone who owns a home. Except me. I won’t be surprised. I read history.
Oh, and by the way, how about something delicious regarding Obama and housing?
FBI moles already have logs of meetings between Obama, Blagojevich and Rezko. The next shoe to fall will be, what was said in those meetings? I think Fitzgerald has enough now to indict Obama, but it won’t be long in coming.
And housing? R-B-O are simply part of the Community Redevelop Act mafia. This group seeks to displace the urban poor to get the land in cities coveted by developers. They’ll put up new housing. Sure! 500 units where 2500 people used to live. The number of poor people in Chicago has been decreasing steadily, and a lot of them have simply been booted out so Rezko can funnel kickback money to Obama. Thanks Barack!
Your readers should certainly read Evelyn Pringle’s series on the RBO gang at opednews:
Friday, April 18, 2008
Barack Obama - Subplots of Operation Board Games - Part I
“If Obama becomes the nominee, the Republicans will unleash a non-stop expose of Obama in the mainstream media that will make the swift boat attacks against John Kerry seem trivial. Only this time, they won’t have to make lies because the truth will be on their side….”