Washington DCâ€™s Fox affiliate appears to have been taken over by Wall Street lobbyists. It has been reporting all sorts of unsubstantiated assertions that a credit squeeze is destroying the economy. You’d never know that typical 30-year mortgage is going for around 6.0 percent these days. Back when I last bought a home I had to pay 7.15 percent. But in Fox’s sell the bailout campaign, there is no place for arithmetic.
Of course few people expect much journalistic integrity from Fox. On the other hand, the NYT enjoys a somewhat better reputation. However, with some of its reporting on the bailout, it’s not clear this better reputation is deserved Today it told readers that â€œearly on Tuesday, banks were charging one another the highest overnight borrowing costs ever recorded, as measured by an important rate known as Libor.â€
That sounds really bad — the highest overnight borrowing cost in history. Maybe it would have been helpful to tell readers that this data has only been compiled since 2001, a period of unusually low interest rates.
If we want a longer time frame, we can look at the history for the three month interbank rate. Bloomberg reports that the three month London Interbank rate (LIBOR) closed at 4.05 percent on Tuesday. In the same chart, we can find that it was 5.23 percent a year ago.
Those interested in a little more history can find that the LIBOR rate was over 8.0 percent for most of 1990 and actually topped 9.0 percent on some days in September of 1989.
So how scared should we be that yesterday’s interest rate was almost half as large as the three month LIBOR back in 1989? It would be hard for a serious person to explain how a 4.05 percent LIBOR can shut down the economy, when the interest rate has been more than twice as high in the not too distant past. But, that won’t fit the NYT credit crisis story, so you won’t see the historical data mentioned.