Panic was spreading on two of the scariest days ever in financial markets, and the biggest investors ”” not small investors ”” were panicking the most. Nobody was sure how much damage it would cause before it ended.
This is what a credit crisis looks like. It’s not like a stock market crisis, where the scary plunge of stocks is obvious to all. The credit crisis has played out in places most people can’t see. It’s banks refusing to lend to other banks ”” even though that is one of the most essential functions of the banking system. It’s a loss of confidence in seemingly healthy institutions like Morgan Stanley and Goldman ”” both of which reported profits even as the pressure was mounting. It is panicked hedge funds pulling out cash. It is frightened investors protecting themselves by buying credit-default swaps ”” a financial insurance policy against potential bankruptcy ”” at prices 30 times what they normally would pay.
It was this 36-hour period two weeks ago ”” from the morning of Wednesday, Sept. 17, to the afternoon of Thursday, Sept. 18 ”” that spooked policy makers by opening fissures in the worldwide financial system.