We've seen the TED went up to 236 bps on 9/17. It's about the highest level it got since the emergence of the credit crunch.
The U.S. government promptly proposed a rescue plan to buy those poisonous mortgage-backed assets held by financial firms. The plan is presumably worth $700BN. The volatility of the market or risk per se is no longer a problem, is it?
Rule No. 1: Government is usually a problem instead of a solution to a financial turmoil.
Here lies the dilemma, we do need the government to be a solution this time because the market is just too fragile to handle the problem itself. However, we shouldn't expect the measures taken by the government can be a magic bullet which defies all we believed for so long. Paul Krugman in his New York Times blog says:
I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.
My guess is that he won't be the only one who's saying that. We might see a rally in the short term, but the market is no way as stable as it once was.