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It seems every time Stratfor shines a light on something in this financial crisis we discover distressing news. Here is some good news for once.

The global system is in the grip of a financial crisis with its origins in the U.S. subprime mortgage market. Most accurately, it faces a liquidity-availability problem: There is plenty of money in the system, but banks fear they might never see the money they loaned — even to other banks — again. The natural reaction is thus not to lend.

Ultimately, the London Interbank Offered Rate (LIBOR) best encapsulates this nervousness. This is the most broadly quoted interest rate banks charge one another for loans; most of that market is based off of LIBOR one way or another. Normally, LIBOR closely tracks U.S. Federal Reserve System interest rates. But when the liquidity crunch began a few weeks ago, the rate shot through the roof as banks became less willing to lend. The higher the LIBOR rate, the more difficult it is for banks to get loans from peers.


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