The Economist: A light at the end of the tunnel?

Concerted action is taken around the world to rescue the financial system
Oct 13th 2008

THE dithering has ended. After a week in which the financial system almost ground to a halt, governments of the industrialised world seem at last to have found the right tools to get credit markets moving again. At the weekend and early on Monday October 13th officials in Europe, America and Asia announced unprecedented and comprehensive plans to prop up failing banks, guarantee their loans and flood the world with cash by providing unlimited dollar funds through central banks. At first blush—and in contrast to previous failures after half-hearted efforts—the new plans seem to be working. Stockmarkets rose in Europe and Asia on Monday, although the real sign that the situation is improving will come in the credit markets this week.

All the actions are aimed at dealing with the three related problems that have blocked credit markets and the banking system. These are that banks have been unable to raise enough money in the frozen short-term money markets; that banks are unable to take out loans for three-to-five years to make up the shortfall between deposits and lending, because markets for longer-term borrowing are also shut; and, last, that they are struggling to win the trust of lenders because they do not have enough capital as a cushion against losses. the rest

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