While the financial markets are getting some traction and the worse may be behind us, there still are issues to deal with. For instance, in last two days we have seen that while rates in the markets are returning to more normal levels, Banks are making it more difficult to get loans. This is probably what we want, but does come with the problem of potentially slowing the economy.
From CNN: Lending rates fall to pre-Lehman levels - Nov. 4, 2008
"Libor rates have been trending downward since mid-October, when the Fed took the unprecedented move to flood 13 central banks around the globe with unlimited amounts of dollars. Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K.
Less than a month ago, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boost for the strangled credit market because more than $350 trillion in assets are tied to Libor"
But simultaneously Bloomberg and the BBC reported that a new Fed survey finds tougher borrowing standards.BBC NEWS | Business | US banks cut back their lending
"US banks have tightened up even more on lending, despite the Wall Street rescue deal designed to encourage the renewal of normal lending practices.
A quarterly Federal Reserve survey in October found 70% of banks tightened standards on prime mortgages while 60% had done so with credit card debt.
Some 95% of banks had tightened their standards for providing credit to large and medium-sized businesses."
And from Bloomberg
``It has never been harder for businesses and individuals to get a loan from the bank,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Banks are turning away borrowers left and right.''
Some 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 large and mid-sized firms versus July, the Fed said.
``Higher fractions of banks reported having reduced both the maximum size and the maximum maturity of loans or credit lines to large and middle-market and to smaller firms,'' the survey said."
moreover this may, at least in the short run, negatively impact the economy. Interestingly, and predictably, real estate lenders have kept rates high there even as shorter term rates (driven in part by Fed and Treasury intervention) have fallen.
``The supply of credit is coming under ever increasing tighter conditions,'' said Fisher. This ``exacerbates the downward slippage of the economy.''
The Fed has reduced its main rate 4.25 percentage points over the past 14 months to 1 percent. Still, the average rate on a 30-year mortgage stood at 6.46 percent last week, up from 6.26 percent a year ago, according to data from Freddie Mac."
While not wanting to play political prognosticator (even on election day), it would not be surprising to see this be the area of next government action (meddling?).