My impression is that the banks under present circumstances cannot or do not effortlessly translate liquidity from the dollar market into the euro market and back again. The central banks, for example, seem to think it makes a difference which among them pumps liquidity into their own markets. Admittedly the arbitrage does work rather well, even under the bizarre conditions of the last six months. And that was precisely the point of the third lesson that I drew from the graph.

As a postscript to my post (!), I should mention the Wall Street Journal article that appeared the next day, April 16. It explained that LIBOR had recently lost some of its reliability … that the true spreads were even higher than what the panels of banks were reporting to the institution that calculates LIBOR, the British Bankers Association (BBA). But apparently the banks immediately responded to that article by increasing the honesty of their interest rate reports, so that LIBOR is once again relatively reliable.