When Winston Churchill lost the 1945 election, his wife remarked that the defeat might be a blessing in disguise. "At the moment", replied the great man, "it seems quite effectively disguised."rnIt is possible, when investors view recent events in retrospect, they will see them as a turning point for markets. But if there are immediately bullish implications, they seem to be quite effectively disguised. The American authorities sacrificed Lehman Brothers "to encourage the others", only to find the others were simply encouraged to deny funding to weak-looking institutions.rnRisk aversion reached extremes this week as the money markets froze. Overnight dollar rates doubled in the interbank market while the rate paid by the American government for three-month money fell to its lowest in more than 50 years. In addition, the caning the authorities gave to shareholders in Fannie Mae, Freddie Mac and AIG, however hard to argue with, will make it tough for financial institutions to raise new equity. Wall Street did not even bother to rally after the aig deal as it had after previous government interventions.rnBad news seems to be coming from all sides, leaving Hank Paulson, America's treasury secretary, increasingly resembling a one-armed wallpaper hanger as he valiantly seeks to cope with the mess. Another problem emerged this week; a $65 billion money-market fund, Reserve Primary, suspended redemptions and warned that it would "break the buck", ie, repay investors at less than face value. That could cause a flight out of other money-market funds. Meanwhile, credit spreads over risk-free rates have widened sharply and emerging markets have taken a hammering.
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