For a while, it seemed as if this financial crisis was merely going to afflict a handful of institutions, but now it's moving into other realms, such as money markets, and things are getting really freaky. The Journal, using a metaphor that is perhaps a shade too lengthy and graphic, likens what is happening to a spreading disease:
The U.S. financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading, and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied.
Great. After the jump, a quick look at what happened while you were sleeping:
• All the major central banks banded together to flood the market with money, which like menthol products feels good but may not ultimately be healing: "Today's coordinated intervention shows that the [central banks] are acting to address market liquidity failure — this is itself reassuring," Laurence Mutkin, head of European interest-rate strategy at Morgan Stanley in London, wrote in a research note. But, he added, "the intervention does not directly address the key problem … banks' desire to hoard cash and their reluctance to lend to each other."
• In particular, the Federal Reserve authorized a $180 billion expansion of its temporary reciprocal currency arrangements, known as swap lines, to allow banks to borrow more dollars in money markets at lower rates.
• Morgan Stanley, which just the other day was fine, is now in talks to merge with Wachovia.
• The Reserve Primary Fund, a giant money-market fund, i.e. a "safe" fund, "broke the buck," meaning its shares dropped below a dollar to 97 cents, and this is causing everyone to now panic like crazy about their money-market accounts, if the Times most-e-mailed list is any indication.
• Oil prices are back up to $100 a barrel.
• John McCain has absolutely no idea what's going on.