It was triggered by the Fed saying they’ll sell $200bn of t-bills on a short-term basis, using as collateral the toxic sludge banks and hedge funds can’t sell. Thus, the Fed is acting like a pawnshop, except the collateral is hard to price because there are few buyers for it.
Some think was specifically aimed at propping up wobbling Bear Stearns.
The Federal Reserve’s actions today may have been strongly influenced by Bear Stearns’ problem.
– Analyst Dick Bove of Punk Ziegel
Pretty wild stuff — $200 Billion in Fed lending against junk paper, to bail out one mid-size investment bank.