As Credit Crisis Spiraled, Alarm Led to Action - Morningbull

The respite was brief. Wednesday, Sept. 17, was one of those dark, ugly
market days that offers not even a glimmer of hope.
Fearing the worst, Alex Ehrlich, the global head of prime services at the
Swiss bank UBS, arrived at work in New York at 5 a.m. and immediately
started putting out fires. Because he ran the firm’s prime brokerage unit,
clients were calling to see whether their money was safe.
“We were being flooded with client requests to move positions, and the
funding markets, which are critically important to prime brokers, were
extremely volatile,” he said.
Within seconds of the market opening, the Dow was down 160 points.
Among the big losers was Morgan Stanley. Despite the strong earnings it
had disclosed late Tuesday, its stock continued to plummet. By noon, the
Dow was down 330 points. It rallied in the afternoon, but went into free fall
in the last 45 minutes, closing down 449 points.
And that was just what investors could see. Behind the scenes, the credit
markets had almost completely frozen up. Banks were refusing to lend to
other banks, and spreads on credit default swaps on financial stocks — the
price of insuring against bankruptcy — veered into uncharted waters.
Moreover, the drain on money funds continued. By the end of business on
Wednesday, institutional investors had withdrawn more than $290 billion
from money market funds. In what experts call a “flight to safety,” investors
were taking money out of stocks and bonds and even money market funds
and buying the safest investments in the world: Treasury bills. As a result,
yields on short-term Treasury bills dropped close to zero. That was almost
unheard of.
In the stock market, Mr. Ehrlich of UBS was horrified by the plunge of
Morgan Stanley’s shares, given the stellar earnings. “It felt like there was no
ground beneath your feet,” he said. “I didn’t know where it was going to
end.”
A Chief Executive’s Anger