Last week's events

Last update: September 20, 2008 - 8:20 PM

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.

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