Iowa Banking Law Blog

Is LIBOR Accurate?

The Banking Law Prof Blog has a brief discussion and link to a Wall Street Journal article suggesting that LIBOR (the London inter-bank offered rate) may be artificially low.  Banks in trouble may have been reporting lower rates for inter bank borrowing because they don't want to own up to their actual financial condition.  See Banking Law Prof Blog Article.  So, consumers had been puffing their credit to get home loans, if they are even asked.  Unregulated mortgage brokers puffed, or neglected to fully explain, the financial terms of mortgages they were handing out left and right.  These loans were then securitized and sent down the line.  Now, after those loans went south, partially causing our current economic "slow down," institutions are puffing the interest rate they are getting?  Is the state of the economy being puffed to us?  Let's hope all the huffing and puffing doesn't blow this house down.   

Survey Reports Midwestern Rural Economy Slowing

According to a survey of bank presidents and CEO's in non-urban, agriculturally dependent areas of ten states, rural economy growth has declined for the seventh time this years.  The survey, dubbed the Rural Mainstreet Index, was originated at Creighton University.  A score of 50 indicates growth.  Iowa has the second lowest index score, at 43.9.  The overall index is at 52.1.  In the survey, 60% of CEO's were of the opinion that the benefits of corn-based ethanol have been oversold.  For further information on the RMI see this article from the Omaha World Herald and this release from Creighton University.

Subprime Lineage

          The reports of a recent depositor run at the Countrywide Bank in California may reveal an emerging shortcoming in comfort with the industry's FDIC insurance.  See article in Atlantic Journal-Constitution.  This new phenomena of undifferentiated fear may be the result of the increasingly complex and intertwined system of financial products confronting and confusing investors.  An insightful analysis of this growing customer anxiety and the potential inability or unwillingness of bank customers to differentiate the "insured" financial product from the uninsured financial instrument can be found in the Op-Ed column by Paul Krugman of the New York Times available here (subscription required). 

          Whether more regulation, or simply more common sense, is needed to deal with the recent credit events, Barney Frank, Chair of the U.S. House Financial Service Committee believes in and is urging more federal intervention.  See Financial Times article.  Mr. Frank calls for regulation of mortgage brokers, guidelines for securitization of mortgages, and a total reevaluation of the regulation of financial markets.