Last week's events

Home
World

Last week's events

Updated: September 20, 2008 - 8:20 PM

0
comments
resize text
print
buy reprints

Tweet
share

email
Email share

your name

your email

recipients email

+ add a comment add a comment

The tipping point in the economic crisis came last week as investors flooded the safest investment they could find: short-term government debt. This drove the yields of short-term Treasury bonds to zero, meaning investors were willing to accept no return on their investment if they could guarantee getting their money back.

By Wednesday, investors were fleeing money-market mutual funds, long considered ultra-safe. Money-market funds are where corporate treasurers put rainy-day funds, where sovereign wealth funds park their excess dollars and where Mom-and-Pop investors stash savings.

Money-market funds then began selling what they could and hoarding cash to meet what they thought might be extraordinary levels of redemptions from investors.

The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Companies would be unable to fund their daily operations.