Credit Plan Not Enough To Solve Global Crisis!!!!

Credit Plan Not Enough To Solve Global Crisis: Experts

Optimism about a central bank effort to ease the global credit crunch turned to skepticism as many experts said that the plan wouldn't be enough to ease the crisis.

"As long as uncertainty with respect to the scope of the credit problems exists, the disruptions on the money market are likely to persist," said Thomas Jordan of Switzerland's central bank, the Swiss National Bank.

"Central banks cannot compensate for this lack of confidence simply by injecting additional liquidity," he added. "On the contrary, the financial market participants themselves must take the fundamental steps needed to restore this confidence."

Interbank lending rates eased only a little from sky-high levels in response, although they edged down for the first time in over a month.

The Fed said it would launch a "temporary term auction facility," expanding the number of banks allowed to borrow money at favourable rates.

The deal, hammered out in Cape Town at a meeting of the Group of 20 last month, also catered for affected foreign investors -- the Fed will open foreign exchange swaps for up to
$20 billion with the European Central Bank and up to $4 billion with the Swiss National Bank.

Welcome but not enough, was the broad verdict.

New York Federal Reserve Bank President Timothy Geithner told a conference the plan would reduce risks that liquidity problems would hurt the broader economy but said the conditions
that prompted the credit crisis would take time to resolve.

Three-month euro Libor edged down to 4.94938 percent from 4.95250 percent, while one-month euro rates shed just one basis point from Wednesday's level, which was the highest since December 2000.

"Going forward, the measures will ease some of the recent tensions but are unlikely to result in a major improvement in liquidity unless financial counterparts begin to trust each other," Calyon strategists said in a note to clients.

"This will require transparency and a clear assessment of the extent of credit losses held by such institutions. This could be a long way off, implying that central banks will have to remain active participants for some months yet."

U.S. subprime mortgages -- lent to people ill-equipped to pay them back -- were bundled up into complex financial products and sold on around the globe. Uncertainty about where the
exposure lies remains intense, causing interbank lending to wither.

There is no sign yet of an end to damage to bank balance sheets despite colossal write-offs in America and Europe.

OTHER:

~Lehman Brothers Holdings Inc said on Thursday that quarterly earnings fell 11 percent, hurt by writedowns in bond trading, although results beat analysts' average expectations.

~Countrywide Financial Corp, the largest U.S. home loan lender, said mortgage loan funding tumbled 40 percent to $23 billion in November, sending its shares tumbling.

~On Wednesday, Bank of America and Wachovia Corp warned of further write-downs for the fourth quarter.

~Questions have also been posed about a planned "superfund" to bail troubled investment vehicles tied to the U.S. subprime mortgage market.

~The Wall Street Journal reported that some banks which were expected to contribute to the fund to bail out securitized investment vehicles (SIVs) were losing interest as they doubt
its ability to provide a solution to the credit crunch.

~Japanese banks are belatedly being approached to lend a hand, the newspaper said.

Thank you,

Billy Sorrentino
ADVISOR * Branch Director


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