Was that it? Can it really be that the violent storm that broke over financial markets this month has turned out to have been no more than a bit of noisy huffing and puffing, an empty squall that blew over at the first sign of a response from central banks? Have the excitable gloom-mongers in the media and parts of the financial markets once again been denied their Apocalypse?
There have certainly been encouraging signs in the past few trading days that, over here in the United States, markets are reverting to a sort of normality. Equities have shaken off the doldrums.
After a strong week, the Dow Jones is 6 per cent above where it started the year and only 5 per cent off its July peak.
Having spent much of the past two weeks bouncing around like a bungee jumper on a thin rubber band, US Treasury markets look comparatively becalmed – the yield on three-month Treasury bills has bounced back up from its low of below 3 per cent last week to a more normal looking 4.5 per cent.
In the interbank credit market, anecdotal evidence suggests that the August panic is giving way to a late-summer calm. Those nasty rumours about imminent bank failures – featuring, in the UK, names such as Northern Rock and, in the US, Countrywide – have dried up. The weird things that were going on in the interbank market two weeks ago – with overnight lending rates shooting up and down in an unprecedented way – have disappeared.
It is tempting for those of us who never signed on to the “sky is falling” hysteria to crow at the sheer dullness of it all.
But in truth even I did not think that it could really blow over this quickly. What kind of a crisis was that?
Central banks step up their overnight repos, the Fed cuts a largely symbolic, as opposed to a real, interest rate and a few big-swinging, money-centre banks make a very public appearance at the discount window, and that is it?