25 them would be forced to see profits i

Should we repeat today a bit of simple calculation exercise to understand the mechanisms of the crisis

In the spring of 2007, a company of the CAC 40 borrowed 1,250 million euros in the financial markets on a mature in 5 years and paid to investors a rate of 4.50. The banks, which is one of the trades to meet borrowers and investors flocked to obtain the warrant. Half a day was enough to ensure that the four selected banks organize the transaction. Including, their task was to explain to all interested investors that only part of the offer may be accepted, because there was influx of lenders candidates. And then they have indicated to investors that the just price or equilibrium price, for the operation at age 5, was the rate of interbank market (midswap), or about 4.22 plus, in respect of remuneration of a margin of 0.28. Then, they have organized a parallel transaction for the same amount to 10 years, facilitated the secondary market, i.e. ensured that lenders (representative of the loan) paper buyers can, if they wished, yield to very fitting conditions, at any time in being paid by the borrower (feesbancaires) on freely negotiated terms.

A year and a few months later, financial crisis obliges, the same company has completed a new operation, very similar. But in September 2008, it was limited to 750 million, still over 5 years and has paid investors a rate of 7.25 (midswap, or 4.55, 2.70 margin). This example based on the following comments. First, the strong French company, need to be regularly refinance that is often to repay its previous creditors and/or meet its investment needs of the time, can not long almost pay double what she accepted a few months even without taking the risk of degrading, not only its market capitalization but also his capacity for development.

The other note, is that one could consider that investors are well sots not very much enjoy these exceptional conditions to lend. But they have now so afraid to see poor performance management that they prefer finally refrain. In fact, have lent in September to 7.25 and have not lent in November to, for example, 8.25, them would be forced to see profits (i.e. a loss on the basis of "mark to market") 1 for five years!

Finally, it should be noted that banks who took all possible and imaginable commitments to ensure that they participate in the financing of the economy should ensure to lend, live, by relying on their customer deposits and various funding that they are (generously) made by the public power, regardless of the form of these funds. They should also ensure, again, their role as intermediary in the markets by example of regained confidence. Indeed, if banks between them continue to not to be enough confidence, i.e. to do more to lend enough, not even in the short term, so should not be surprised that those who are not directly supported by the public power, especially investors, are not yet ready to replay the game to the financing of the economy. Or then should that borrowers are directly supported by the public power No, to each his occupation.

In short, must be that each is put really of his own, as a first step, safeguard the essential then, as quickly as possible, have the capacity to restart.