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The last four days have seen the already distressed US banking sector lurch towards the precipice of a full blown financial system meltdown. Banks that have already seen stock price falls of as much as 90% were again hit today with many falling a further 5% to 10% on fears that a series of cascading bank failures were about to be triggered following the collapse of Indymac bank on Friday, as a run on the bank had panicking depositors withdrew funds at the rate of a billion a day.
The Federal regulators stepped in to seize the assets and guarantee 100% of the first $100k of depositors money. Meanwhile at the same time another far bigger crisis was unfolding as Freddie Mac and Fannie Mae that insure or manage more than half of US mortgages were also on the brink of collapse.
US Treasury Secretary Hank Paulson stepped in to try and reassure the market that the banks were able to meet to day to day financing operations. This 'ms-information' was followed on Sunday by a U-turn by the Federal Reserve and Treasury Department by making unlimited funds available to both critical institutions so as to prevent their collapse, even going so far as the government seeking to buy the banks stock so as to put a floor under the share prices.
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