Financial meltdown deepens – Libor rates and slump in commercial paper shows it is beyond the control of the $700 billion bailout package
Justine Pearle
Oct. 2, 2008

The stock market is not eager to hear about the $700 billion deal to socialize American financial system. The situation is now beyond the control of American politicians.

The London interbank offered rate that the banks charge each other for loans rose for a fourth day, driving a gauge of cash scarcity among banks to a record. The biggest drop in financial short-term debt outstanding since at least 2000 caused the U.S. commercial paper market to tumble 5.6 percent to a three-year low, according to the Federal Reserve.

The crisis deepened after the worst month for corporate credit on record. Leveraged loan prices plunged to all-time lows, short-term debt markets seized up and even the safest company bonds suffered the worst losses in at least two decades as investors flocked to Treasuries. Credit markets have frozen and money-market rates keep rising even after central banks pumped an unprecedented $1 trillion into the financial system.

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