Loosening Up: How a Panicky Day Led the Fed to Act; Freezing of Credit Drives Sudden Shift; Shoving to Make Trades
Strains in financial markets had been evident for weeks, but Thursday, Aug. 16, was different.</br></br>As the day dawned in London, $45.5 billion in short-term IOUs issued outside the U.S. by corporations and others were maturing and had to be rolled over. Traders usually have buyers for such paper by lunchtime in London, around 7 a.m. in New York. On this morning, demand had dried up, and it would take the whole day to sell less than half of it, said a person familiar with the market.</br></br>At 7:30 a.m. in New York, the largest maker of mortgages in the U.S., Countrywide Financial Corp., said it was tapping $11.5 billion in bank credit lines, a sign that it was unable to raise money in financial markets as it had been.</br></br>This was a development more serious than another hedge fund running into trouble. "When you start talking about Countrywide," said one senior Wall Street executive, "that's kind of America. At the end of the day, we're talking about Mom and Pop and the right to own a home."</br></br>Just before noon New York time, near the end of the London trading day, the yen suddenly surged against the dollar, rising 2% in just minutes and crushing currency-market players who hadn't anticipated such a sharp move. On the London trading floor of Goldman Sachs Group Inc., phone lines lit up in unison, and some salesmen wielded two phones at the same time. They were shoving and grabbing each other to get in front of traders, and shouting orders to execute trades, according to eyewitnesses.