Fed red alert
The US central bank’s latest attempt to inject money and confidence into the financial system is its third in ten days – and arguably its most ambitious since the 1930s.
The Federal Reserve has reduced the rate at which banks can borrow directly from it, trebled the length of time they can borrow and allowed 20 securities firms direct access to the same facilities.
That $30bn is secured against assets of questionable value. And if they turn out to be worth less than $30bn, well the loss will be taken by taxpayers, not by JP Morgan.
To digress for a second, the state-subsidised rescue of Bear Stearns is remarkably similar to the plan for Northern Rock to be acquired by Lloyds TSB last September, which was backed by the Financial Services Authority but rejected by the Bank of England and the Treasury.
The reason for the Fed’s emergency evasive action is that it has become very concerned about what bankers’ call deleveraging, or the process of lenders wanting their money back from any creditor perceived as risky.
That puts strains on important financial institutions, such as Bear Stearns, and on the health of the financial system – which underpins the global economy.
Will the Fed's latest initiatives - including an anticipated half-percentage-point cut in its main lending rate tomorrow - do the trick?
That's very unclear.
The continued fall in the dollar weakens the confidence of global investors in the US.
The Catch-22 for the Fed is that providers of capital may become even more risk-averse having seen quite how worried the authorities have become.
UPDATE 11.35: Finance is global, so the shortage of liquid funds in New York has led to a shortage in the London money markets too.
That's why the Bank of England this morning offered £5bn of emergency, short-term loans to British banks.
But here's the scary statistic. Our banks put in bids for £23.6bn of these three-day loans.
Banks wanted more than four times what the Bank of England made available - which indicates they are not exactly flush with cash right now.
Wall Street's problem is our problem.
UPDATE 12.25: Here is another scary trend. The dollar has been sinking like a stone against the yen, the euro and the swiss franc. Which tells you how nervous international investors are about the US economy.
But what should alarm us over here is that the one currency that hasn't strengthened against the dollar is our own, sterling.
That tells you that those who control the world's cash reserves fear that the UK economy is like the US economy in all the wrong ways, notably that our housing market is over-valued and we're too dependent on a financial sector under considerable strain.