“[W]e need to act quickly. The financial situation is now downright scary. Don’t look at the stock market — that’s not where the problem is. The problem is in the credit markets, which are quickly freezing. I won’t bore you with technical indicators like Libor and Treasury swap spreads, but if you talk to people who work these markets every day, as I have, they report that the money markets are in worse shape than they were last August, or even during the currency crises of 1998.

Banks and big corporations and even money-market funds are hoarding cash, refusing to lend it out for a day or a week or a month. Even the best companies are having trouble floating bonds at reasonable rates. And the shadow banking system — the market in asset-backed securities that ultimately supplies the capital for most home loans, car loans, college loans — is almost completely shut down.

People are so nervous, and there is so much distrust, that all it would take is one more hit to trigger the modern-day equivalent of a nationwide bank run.”