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It looked like we were hitting the bottom of the current structured finance trouble this week. Those precipitous declines in mortgage security indices were halted, and a slew of calming noises came from British banks - HSBC and Barclays both reported subprime writedowns well within comfort zones.

But as the FT’s Charles Pretzlik pointed out yesterday, anyone who was expecting Barclays stock to rocket, was mistaken. Ditto that for HSBC. In the event, Barclays was, in fact, off another 1.5 per cent. Given the painfully fast slide Barclays shares have suffered over the past few weeks that’s a little galling.

For smaller banks, like Alliance & Leicester there’s no respite. Shares in the mortgage lender closed lower for a third straight session on Thursday - again on the back of funding worries. Financials have been a dead weight for the FTSE all week.

Firstly, not everyone is too comfortable with what’s been disclosed by the banks. There are doubts about the veracity of some of their claims. No one is quite comfortable with the idea, for example, that Barcap - one of the most aggressive and innovative structured finance houses out there - is so high and dry. Barcap were a leading CDO arranger, a mortage-backed security monolith and a doyen of the SIV world. They invented the SIV-lite. Remarkable then that their exposures are so minimal.It doesn’t exactly help that the writedowns banks are making vary wildly in their scale and courage. UBS, by some accounts, is indeed from cloud-cuckoo land.

Secondly, the credit crunch has been pretty good a toughing it out - even the sunlit uplands of Teun Draisma’s equity wonderworld are fast darkening. This crunch doesn’t look like it has a fixed lifespan. Everyone thought it was all over in late September. Then we had October. With predictions that foreclosure rates and subprime mortgage defaults have yet to peak, there’s still plenty of pain to be worked through in the mortgage securitization market.

Thirdly, a spectre once thought exorcised is again haunting London. Libor is sky high - back to levels it hasn’t seen since the credit crisis hit its first peak in mid-September. The three-month rate has surged beyond the 6.3 per cent level. Unsuprisingly, that autumnal leaf fall of banking writedowns is to blame.

Writes Paul J Davies in Friday’s FT, “astonishing” lending growth “…is helping to cause significant capital constraints, which limit the amount of planned new lending that banks can make…” Banks are now seeing their capital stretched thin in all directions - not just by downgraded assets warehoused on their balance sheets, but also by increasing exposures to “variable interest entities” - forced right when they could least be afforded.

In other words, whereas in August and September banks were less willing to lend to each other, now they’re less able.

The old liquidity gambit is back in play - and by some accounts, it will be here well through Christmas.

Humbug.