FP Top Story 9/18

In a big-time move announced at 3 a.m. Thursday morning, the U.S. Federal Reserve teamed up with the European Central Bank, the Bank of Japan, and others to inject $180 billion into global money markets.

The Fed authorized the expansion of its "swap lines," temporary reciprocal currency arrangements, to unlock credit markets that froze up when banks around the world essentially stopped lending to one another in dollars. Jim O'Neill, chief economist for Goldman Sachs in London, explains, "There's a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that."

The Fed's move came after a harrowing day on Wall Street Wednesday. The Dow Jones industrial average fell by 449 points and the S&P 500 dropped to its lowest level in over three years. Gold prices shot up and yields on three-month Treasury bills plummeted as investors fled stocks and debt for safer assets, raising the cost of borrowing for financial firms that are already under great pressure.

"It's like having a fire in a cinema," Princeton economist Hyun Song Shin told the New York Times. "Everybody is rushing to the door. You are rushing to the door because everyone is rushing to the door."

European markets recovered slightly today, but Asian stocks continued to fall. Meanwhile, investment bank Morgan Stanley is reportedly in merger talks with regional bank Wachovia, while Washington Mutual is working on a sale.