Today's Wall Street Journal tries to explain what went wrong
The global financial crisis has taken a perilous turn: As government efforts to tame it grow more aggressive, markets are becoming less confident those efforts will succeed.
On Monday, the Federal Reserve and European governments stepped up relief efforts, above and beyond the $700 billion rescue package approved by the Congress last week. But markets around the world responded with a massive vote of no confidence. European stocks saw their biggest drop in at least 20 years, and the Dow Jones Industrial Average dropped below the 10000 mark, a stark sign that the crisis may be outpacing policy makers' ability to contain it.
The deepening malaise illustrates how the financial crisis has moved far beyond U.S. subprime-mortgage troubles to a much more fundamental breakdown of trust. The best efforts of U.S. and European officials haven't solved the central problem: Nobody knows which firms will go under, making almost everybody afraid to lend.
The problem has become so severe that it's affecting not only banks, but regular companies, which are finding it more difficult to borrow money for everyday activities such as paying workers and buying supplies. If sustained, the freeze in short-term-lending markets will weigh heavily on the weakening global economy. Investors are now coming to recognize this harsh reality.
