Thursday, September 25, 2008


The thought that Congress might not back Paulson is terrifying markets. You can't see the strain in share prices but in the money markets, which have frozen. Overnight money is flowing only because central banks are pumping funds into the system. But the rates at which banks lend to each other have rocketed. Hedge funds - many of which still have cash locked up at Lehman - fear another collapse and are closing positions and demanding that their brokers return collateral.

The worst part is that there are still two days to go - Paulson has demanded that Congress back him by Friday. By last night, that seemed unlikely to happen. But the message from the paralysed money markets is that Buffett and Paulson are not bluffing: fear is back. Friday is shaping up as a very big day.


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