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A Trillion Dollars Later, the Banking System Is Still Careening Towards Cardiac Arrest

May 21, 2010 (EIRNS)—The unlimited Federal Reserve swap line provided for European Central Bank transfusions into the imploding European banking system, as part of the trillion-dollar TARP II bailout announced on May 9, ain't working, the City of London outlet Financial Times howled on May 19. Yes, the banks desperately need dollars, the newspaper reported, but not the short-term dollars being offered; they need medium- and long-term dollars, and lots more of them!

Although the Federal Reserve has not made any information public about what it is actually doing with the swaps, today the Bank of Japan announced that it will provide one-year loans to banks at super-low rates (0.1%), which was heretofore available only for overnight loans.

Regardless, the Libor [London Interbank Offered Rate] interbank rate has continued to rise every single day since the trillion-dollar bailout was announced, and is now at its highest level in almost 10 months—which reflects the fact that banks are simply unwilling to lend even to each other under the current conditions of meltdown.

Corporate bond sales have also ground to a halt, since no one is willing to buy. According to the Financial Times' Alphaville blog, "another side-effect of recent market volatility [has been] the death of corporate credit issuance." From 15 billion euros issued as recently as the week of April 12, new issuances have essentially ground to a halt ever since the trillion-dollar bailout was announced.