“Unprecedented in modern times”

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Good morning. Did you ever have a favorite little restaurant that was suddenly discovered and then overrun with new customers, and it was no longer your own little place any more? That’s what has happened to the story of the housing bubble. It no longer belongs to housing. It has morphed into a bigger, more ominous story involving the health of the nation’s largest financial institutions.

Today the Federal Reserve tried something new and different: ‘In a statement timed to occur before the start of trading in New York, the Fed said it planned to offer $40 billion in emergency funds to banks next week through an auction process.’

Observed economist Ian Shepherdson, ‘Clearly, the Fed is feeling its way in the dark here. Current conditions are unprecedented in modern times.’

Alarmist? Maybe. But fear at the Fed is not a good thing, and that is the headline on this item from Floyd Norris at NYTimes.com today: ‘The combined actions of the world’s central banks on Wednesday smacks of a real fear that the world’s financial system is in trouble.’

A year ago, a large financial institution in trouble -- say Countrywide Financial, or Washington Mutual, which both happen to be in trouble -- would set off gleeful speculation about huge mergers. Today the list of potential buyers is suddenly very short. Bank of America as a buyer? Gee, do you think Bank of America shareholders are happy with the $2 billion they already invested in Countrywide?

Your thoughts? Comments? Email story tips to peter.viles@latimes.com.