New Order Ushers in A World of Instability

By Steven Pearlstein

Friday, August 10, 2007; Page D01

Think about it. In the space of just several months, we've moved from an environment in which fly-by-night brokers were peddling low-interest mortgages to bad credit risks with no documentation and no money down, to one in which the largest banks are raising rates and tightening terms for their best borrowers.

In the space of several weeks, we've moved from an environment in which 25 percent of corporate takeovers could be financed with the junkiest of C-rate bonds, to a world in which the market for C-bonds has completely evaporated.

In just the past few days, problems in the U.S. housing and mortgage markets have come to pose serious challenges for Australian hedge funds, French insurers and mid-market German banks.

And in the course of several hours, a financial system that was seemingly awash in liquidity suddenly didn't have enough. ___________________________________________________________________

Which begs the question, what happens to all that money that was yesterday's flood and today's drought? Does it evaporate and form clouds to rain again elsewhere?

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