There is a major subliminal story here. The Big Capital markets are probably not sucking up the (somewhat implied) "full faith & Credit of US Government" story line for GSE paper. They are also thrashing the "Too big to fail" theory. Looks like the world might have just changed. GSEs may have to follow the normal laws of capitalism.
There was another story in FT (see Credit Market & Liquidity crunch) that London & Euro interbank credit markets are almost completely choked up. Looks like we may be seeing a major international credibility crisis. If so, that is a big problem; If liquidity is lost, that can be replaced, but from where will you inject trust among market participants. Reminds me of the old saying “If wealth is lost, nothing is lost. If health is lost, something is lost. But, if character is lost, everything is lost.” We may be seeing case 3 rather than 1.
