Soaring Markets Reveal Clues About Big Banks' Levels of Trust, Comfort - New Hour

[BridgeTheGap]

JEFFREY BROWN: And we take a closer look now at today's move and the reaction with Catherine Mann, professor of economics at the Brandeis International Business School. She served previously on the Federal Reserve Board of Governors. And David Smick, a global economic policy strategist and author of the book "The World is Curved: Hidden Dangers to the Global Economy."
>
And that's the way that banks fund themselves, is that they borrow in the overnight market from each other. And since the summer, we have been looking at the interest rate that they charge each other has been rising and rising and rising. It's now at a level or was earlier today at the level right before the crisis with Lehman Brothers.

And so the central banks were looking at this really expensive cost of banks borrowing from each other as really an indicator of the amount of stress that was happening and the lack of trust between banks since they weren't going to lend to each other. So that's really what they were trying to address here.
>
I agree with Catherine. This was about trust. And I think it's confusing for a lot of people. What's going on here is that in the summer, the European banks decided they didn't trust each other. And the interbank market froze. So the European Central Bank said, we well into the interbank market.

And so everything worked fine until just the last week or so, when suddenly the European banks said we don't trust the European Central Bank. We're not sure it's going to be around the ways things are going.

http://www.pbs.org/newshour/bb/business/july-dec11/centralbank2_11-30.html