On 14/03/2008, Mario Goveia <[EMAIL PROTECTED]> wrote: > Thu Mar 13 03:47:56 PDT 2008 > Gabe Menezes gabe.menezes at gmail.com wrote: > > > Yes USD interest rates touched 23 percent for one year money, during that > period. > > > Mario responds: > > > At first glance this looked like an excerpt from the article. Then I > realized it was the poster's own editorial comment - it was hard to tell when > the switch took place. > > > Though the article said that interest rates had gone over 20% I was unable > to find any evidence that the interest rate in the US had gone as high as 23% > for one year money. Maybe I did not look in the right place. I would > appreciate it if someone could cite some source to support this claim.
RESPONSE: Short of actually pulling up the ticket with the name of the Bank that borrowed, I have no way of proving that. excerpt :- The chairman of the Fed also oversees the 12-member Federal Open Market Committee (FOMC), which decides the conduct of U.S. monetary policy. During 1979 and 1980 the FOMC, under Volcker's leadership, sought to reign in double-digit inflation by setting strict money supply growth targets. This direction was in opposition to past policies that sought to control interest rates at the expense of higher money supply growth rates. The result of the switch in policy was a substantial rise in interest rates, with the prime rate peaking at 21.5 percent in December 1980. ends. http://www.answers.com/topic/paul-volcker If one knows how the inter bank markets work then one would have surmised that it was perfectly possible, that interbank one year money actually traded at 23 percent, with prime being 21-1/2 percent. Not any one can avail money at prime rate; Prime rate is the rate offered for top notch names, corporates borrowing are usually charged a spread over that rate. Now I shall give a lesson in interbank dealings: Funds are quoted at say 3-1/8 - 3-1/4 percent through a broker, for say a certain period. That is the bid price if one is a lender is at 3-1/8 and if one is a borrower the rate is 3-1/4 percent. Now the crux is if the lender can lend to the intended borrower. Every Bank has a trading and lending limit for each other. Moreover there are mark ups for different tier banks. For some Banks the credit just dries up and there isn't even a price at which money can be obtained - ask Bear Stearns....perhaps shortly to be followed by Lehman Bros. The USA under Republicans does not interfere with markets ? :-)) Banks frequently call up each other asking for dealing rates and among the top notch banks the 1/8 spread is quoted. When a Bank, that is not top notch approaches then the bid side would stay the same but the spread could go a much as 3/8 to a 1/2 percent, sometimes the Bank will say I pay so much for the various periods i.e. bid only. If the counter party asks for the offered or lending rate then it could be even 1 percent the other side. Now during the tight money period of early 1980's interbank dealing rates were way, way up and much, much higher than prime. It was not so long ago that Mario claimed that prime, never even went up beyond 20 percent. Obviously Mario wasn't a Banker, neither a financially knowledgeable person nor perhaps studied in the finer aspects of Finance, so I'll excuse him. Another thing that Mario does not know. The deal took place in Singapore; USD FX and interbank lending goes round the World 24/7, not just in the USA ! - The Middle East trade on the weekends. In fact for most reference points, it is L.I.B.O.R. ( London interbank offered rate); this is even quoted as a reference for syndicate deals put together in New York and elsewhere round the World, on to which a spread/margin is added Now if one wants to trade say FX no sweat, so long as the counter party has a dealing limit for you. It is not like dealing in stocks and shares - but even here one's broker will have a limit on the buying side for you - in case you cannot deliver the cash also depends on the limit set up ! Mario should go back to Ann abor or where ever, to gen up on the period when USD interest rates were above 20 percent, he will find that some regional USA Banks might have paid even more than 23 percent. Certainly RJR Nabisco, had a Bond issued by Michael Milken, the Junk Bond King of Drexel, which paid 26 percent. I shall not enter into any more discussion on this thread; i.e. take it or leave it. -- DEV BOREM KORUM. Gabe Menezes. London, England