The Bailout Bill is almost certainly going to pass. Unfortunately, the initial goal of the bill--to restore confidence--already seems to have failed. Credit markets around the world continue to tighten. This begs the question: What will Hank Paulson and Ben Bernanke do next?
(Likely answer: Cut interest rates)
Bloomberg: Money-market rates in Europe may rise on concern the U.S. government's $700 billion financial-rescue package will fail to revive confidence among banks anytime soon, exacerbating an unprecedented seizure in lending.
The Libor-OIS spread, a gauge of cash scarcity among banks, widened today to a record. Rates among Asian banks increased to the highest levels in at least nine months... The Libor-OIS spread, the difference between the three- month dollar rate and the overnight indexed swap rate, climbed to 275 basis points today. It's the third consecutive day the spread has risen to an all-time high. The average was 8 basis points in the 12 months to July 31, 2007, before the credit squeeze began.
