Today, Reuters ran an article whose headline gave us the creeps: Bank-to-bank lending freezes; bankers ask “who’s next?”

… In an effort to minimize the fallout and in conjunction with the fire sale of Bear Stearns to JP Morgan, the Fed on Sunday cut its discount lending rate by a quarter percentage point to 3.25 percent and announced another series of liquidity measures. But with concerns about whether other firms may meet a similar fate to Bear Stearns, nerves on every trade were jangled.

“It’s quite illiquid this morning. If you want unsecured cash you’re really going to have to pay up for it. It’s really quite an intense situation,” said Calyon analyst David Keeble. Banks led the losers as stock markets lost more than 3 percent. UBS, Royal Bank of Scotland and Barclays all fell more than 8 percent. HBOS and Alliance & Leicester slid more than 11 percent. Shares in Lehman Brothers dropped 34 percent before the opening bell on Wall St. “There’s turmoil in all markets after Bear Stearns,” said BNP Paribas strategist Edmund Shing. “Everyone’s asking: Who’s next? Is there a Bear Stearns in Europe? Could investment banks start to fail?” … But International Monetary Fund chief Dominique Strauss-Kahn said the global financial markets crisis was worsening and risk of contagion was increasing. With the dollar sliding to record lows, traders said currency options markets were seizing up too, another reflection of the state of panic and fear that appears to be dominating all financial markets…

The scariest assessment was most likely that issued by Greensopan himself in the FTimes:

We will never have a perfect model of risk:The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities… The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market… The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future. The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress…

Considering the magnitude of the crisis, one question comes to mind: since we are flirting with a turmoil unseen since 1940 and which could translate into a Greater Depression, where is the point to have central bankers managing our economy? Where those big degrees from Harvard and Co lead us in the end?

Too big too fail is a myth… Like Others Before It, Bear Seen Too Big To Fail: who had guessed it among the mainstream pundits. (CNN/03.14)… The ultimate final word is painful. In The telegraphy.uk didn’t mince its words: A world addicted to easy credit must go cold turkey…

When, several years from now, economic historians tot up the final casualty list, a trail of destruction will stretch from mobile homes in America’s Budweiser belt to the council estates of fish-and-chip Britain. The credit crunch travels with alarming ease… Be under no illusion, Friday’s dramatic events in New York were neither an aberration nor confined to the surreal world of investment banking. The pain will be lasting and felt by millions who had no idea they were playing with financial fireworks… For too long, those who warned that the borrowing bubble would burst with terrible consequences were dismissed as congenital gloomsters. Greedy lenders, their irresponsible customers and incompetent ministers formed an unholy alliance to perpetuate a myth: that consumers, companies and governments could keep spending more than they earned and suffer no penalty…

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