IT WAS THE BEST OF TIMES, IT WAS THE WORST OF TIMES...

From The Mortgage Market Guide. Provided by John Todaro of Great Southwest Mortgage of Scottsdale Arizona.
Last Week in Review 8-11

Wait, maybe last week was just plain the worst of times, as far as the financial markets around the globe were concerned. French bank BNP Paribas — the largest bank in France and second largest in Europe — touched off a crisis in Europe on Thursday when it announced that it couldn't determine the values of three of their mutual funds due to their containing US sub-prime mortgage investments, and actually prohibited withdrawals from these funds until a valuation could be made.
This led to a lack of confidence not only with their customers and investors, but also among all European Union banks. These banks, not knowing the extent of each other's investment exposure in US mortgage backed securities, suddenly realized they couldn't trust one another enough to lend each other money via normal inter-bank loans. This created an instant "liquidity crisis" in Europe, and Stock markets across the world reacted negatively as a result.
The European Central Bank, their equivalent of our Fed, took immediate action to stem the crisis by allowing their banks to borrow $131 Billion last Thursday and another $83.8 Billion on Friday. The amount borrowed shocked many analysts, as it was more than three times as much borrowed during the crisis created following the events of 9/11. Back in the US, the Federal Reserve Bank of New York intervened in the liquidity crisis here in the US by adding $84 Billion of liquidity to our own banking system. The Fed's intervention is designed to stabilize our financial markets by restoring confidence, and allowing the markets to continue to trade in an orderly fashion. And while the Fed left the Fed Funds Rate stable following their meeting last week, the current liquidity crisis will likely give the Fed the impetus to cut rates, and cut them aggressively. It may even happen before their next scheduled meeting on September 18th. For perspective, the last time the Fed made rate changes outside of a scheduled meeting was on September 13th and 17th, 2001 - just following the disastrous events of September 11th, 2001. Check back next week to see how the events play out in the market.

Wow, what a bullet we dodged. It looks like the systems that have been put into place to stop a major market meltdown worked. Good! A total of $298 Billion, that is 1/3 of a trillion dollars, had to be pumped into the system to stop the collapse. That is some serious cash. Last week, for some time on Thursday and Friday, lenders could not lock a loan. Wall Street had no investors interested in purchasing mortgage back securities, so they could not price a loan. The level of uncertainty was to a point that there were no buyers. Let's hope we hear some good economic news this week and the market recovers from its jitters of last week.