Floyd Norris, liveblogging the panic today at the NYT — The Great Crash of 2008:
2:45 p.m. ET: If the S.&P. 500 closes where it is now, (1009.07, down 8% for the day) it will have lost more than 13% over the past three sessions. The only other time declines of that magnitude occurred since World War II was in the crash of 1987. Prior to that, the last one was in May 1940, when France fell to Germany.
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.
Also, everyone reading this blog should stop what they're doing right now and go listen to This American Life's epic episode from Friday: Another Frightening Show About the Economy.
Alex Blumberg and NPR's Adam Davidson–the two guys who reported our Giant Pool of Money episode–are back, in collaboration with the Planet Money podcast. They'll explain what happened this week, including what regulators could've done to prevent this financial crisis from happening in the first place. You can learn more about the daily ins and outs and join the discussion on the Planet Money blog.
Here's the direct MP3 Link.