The ECB and Fed injected liquidity into the markets today. ECB allowed european banks to borrow close to 100 billion euros. Reason was that liquidity pressures developed in the call money market, and call rates moved up significantly higher - above the European fund rate. This is almost like a run on a bank. This happened because BNP Paribas lost money in 3 of its money market funds today due to AAA rated subprime blowup. Is my money in Vanguard money market accounts safe??
With this, I think we enter unchartered territories. Risk spreads are not going back to last months levels in a lifetime. I don't know where markets are headed in the next 2 months. But they won't be where anyone expects them to be. This is going to be the best learning experience that I have so far had. Will the Fed cut? How deep will the turmoil be? Will it impact economic growth?