Economic turmoil and yesterday's unprecedented international interest-rate reductions provide the harshest reminder yet that political borders are no shield against financial avalanches.
The U.S. housing crisis has become the global credit crunch.
With rare coordination, central bankers from Washington to London to Frankfurt, Germany, cut rates, pumped out money and signaled a willingness to cut again.
Acting separately, they were unable to stop the damage. Acting together, they hoped to wield a big enough bailing bucket to make a difference and - just as important - signal competence and agreement.
"It is the policy of the federal government to use all resources at its disposal to make our financial system stronger," Treasury Secretary Henry M. Paulson Jr. said yesterday at a news conference. "We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size."
But as yesterday's events made clear, one federal government can do only so much in a worldwide economy, even if it's the government of the United States.
U.S. Treasury Undersecretary David McCormick said that "strengthened international collaboration is needed now more than ever."
Stocks later fell, however, because Paulson didn't appear to be committed enough to further global coordination, some analysts said.
The Dow Jones industrial average declined 189 points to 9,258 while the S&P 500 dropped 11 to 985. It was a volatile day on Wall Street with the indexes gyrating between gains and losses before settling on their sixth consecutive day of declines.
Central banks have moved in harmony before, but never to this degree. Within seconds yesterday, the U.S. Federal Reserve and government banks in the European Union, Switzerland, Sweden, Canada and Britain said they would reduce short-term interest rates by up to half a point.
"This has really gone beyond the subprime problem to a more troubling issue, namely, who do you trust - on a global basis?" said Edward Yardeni, an investment strategist. "There is a recognition by policymakers that this is a global problem, and it needs to be addressed this way."
The Bank of Japan, whose rates are already rock-bottom, expressed "strong support." China's central bank cut rates on its own. By lowering rates and injecting money, central banks are trying to ease a worldwide evaporation of credit that threatens ordinary business transactions and has brought stock markets tumbling.
