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Another article that helps understand the problem and the LIBOR rate the
following is just an extract see rest of it at link below.
Quote:
Blocked pipes
Oct 2nd 2008 | LONDON AND NEW YORK
From The Economist print edition
When banks find it hard to borrow, so do the rest of us
First, the problem. It is widely assumed that central banks set the level of interest rates in their domestic markets. But the rate they announce is the one at which they will lend to the banking system. When banks borrow from anyone else (including other banks), they pay more. Every day, this rate is calculated through a poll of participating banks and published as Libor (London interbank offered rate) or Euribor (Euro interbank offered rate).
Normally, these are only a fraction of a percentage point above the official interest rates. But that has changed dramatically in recent weeks (see chart 1). Take the cost of borrowing dollars. On October 1st banks had to pay 4.15% for three-month money, more than two percentage points above the fed funds target rate. In theory, three-month rates could be that high because markets are expecting a sharp rise in official rates. But that is hardly likely, given the depth of the crisis.
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SEE THE WHOLE ARTICLE AT:
http://www.economist.com/displaystor...ry_id=12342237
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