The end of the beginning

Enjoy the relative calm, it may not last


THE relief is palpable, though it may prove short-lived. Efforts by central banks to jump-start stalled financial markets by injecting huge amounts of liquidity—and, in the Federal Reserve’s case, by cutting the lending rate at its banks-only “discount window”—have kept worst-case scenarios at bay. But uncertainty over who holds what assets, and what losses have hit where, should keep prudent investors on edge.

For better or worse, there are signs that investors are tiptoeing back into riskier assets, one toe at a time. On August 24th the yield on “safe-haven” three-month US Treasury bills rose for a fourth straight day, reversing an earlier collapse when money-market funds and others switched out of commercial paper and other short-term corporate IOUs (see chart).

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The market for short-term inter-bank loans, where the crunch began, has also loosened up. Stocks ended the week on a high, cheered by rare good news from America’s housing market, where home sales were up 2.8% in July, and strong durable-goods orders. Bank of America’s $2 billion lifeline to Countrywide, America’s largest mortgage lender, was reassuring proof that the financial titans see opportunities as well as threats.

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