Crunch time
The ECB’s move eased the cash crunch—at least temporarily. Overnight rates dropped back to the central bank’s target rate of 4%, and economists praised the speed and effectiveness of its intervention. However, the provision of liquidity is only a short-term measure to restore calm. Even cuts in interest rates, which financial markets are pricing in increasingly aggressively, would not necessarily address the underlying problem. Restoring faith in American mortgage markets, and the cornucopia of investments derived from them, is the bigger challenge.