Thursday, October 2, 2008

The credit crisis: anatomy of a market failure

The NY Times reports on 36 Hours of Alarm and Action as Crisis Spiraled.

"...But contagion was already spreading. The problem posed by the Lehman bankruptcy was not the losses suffered by hedge funds and other investors who traded stocks or bonds with the firms. As federal officials had predicted, that turned out to be manageable. (That was one reason the government did not step in to save the firm.)
The real problem was that a handful of hedge funds that used the firm’s London office to handle their trades had billions of dollars in balances frozen in the bankruptcy. "

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