Libor Leaps Higher As Banks Continue to Hoard Cash

Overnight Libor settled at 6.88% in London and three-month Libor leapt another 20 basis points to 4.05%, indicating continued severe dislocations in the money markets. I reiterate my "ZOINKS!" from the day before. Never have I seen the Fed work its liquidity pump so hard to to so little avail. It appears as if the Fed has lost all control of the money markets as the global banking community runs around in circles with its hair on fire. It makes you wonder why anyone would think that another interest rate cut can possibly help the frantic situation.

The banking bailout dujour was a $9.2 billion injection by the French and Belgian governments into Dexia, the world's biggest investor in local governments. In addition to arranging loans for municipalities all over the world, Dexia also insures US municipal bonds. If you are an owner of US munis, you may want to send your friends in France and Belgium a thank you note for bailing you out.

Speaking of bailouts, the Senate has vowed to pass the bailout bill tomorrow. Equity futures are supposedly rallying on the hope that this will actually happen. No doubt another interesting trading day filled with volatility awaits us all.