NYTimes: As Credit Crisis Spiraled, Alarm Led to Action

If you are into this type of thing, here is a comprehensive story on what went on behind the scenes two Wednesday-Thursdays ago when the credit markets completely stopped, causing the mother of all bailouts to be announced. When I read stories like this it reminds me of how we are just little pinatas and we have no clue what is going on behind the scenes.

• It was early on Wednesday, Sept. 17, when executives at Pershing Square, Bill Ackman’s hedge fund, began getting nervous calls and e-mail messages from investors. Mr. Ackman, 42, has been a top Wall Street player for 15 years, making his clients — and himself — billions of dollars. But now, Mr. Ackman and his colleagues were taken aback by what they were hearing. His big investors were worried about all of the Pershing assets held by Goldman Sachs, the blue-chip investment bank, whose stock had come under siege.
• Mr. Ackman advised Goldman executives to do something to restore confidence — such as getting an infusion of capital from Warren E. Buffett, the billionaire investor. (aha so now we know the nexis of that transaction)
• Up and down Wall Street, hedge funds with billions of dollars at Goldman and Morgan Stanley, another storied investment bank, were frantically pulling money out and looking for safer havens. Panic was spreading on two of the scariest days ever in financial markets, and the biggest investors — not small investors — were panicking the most. Nobody was sure how much damage it would cause before it ended.
• This is what a credit crisis looks like. It’s not like a stock market crisis, where the scary plunge of stocks is obvious to all. The credit crisis has played out in places most people can’t see. It’s banks refusing to lend to other banks — even though that is one of the most essential functions of the banking system. It’s a loss of confidence in seemingly healthy institutions like Morgan Stanley and Goldman — both of which reported profits even as the pressure was mounting. It is panicked hedge funds pulling out cash.
• In their rush to do something, and do it fast, the Federal Reserve chairman, Ben S. Bernanke, and Treasury Secretary Henry M. Paulson Jr. concluded the time had come to use the “break the glass” rescue plan they had been developing.
• “If we don’t do this,” Mr. Bernanke said, according to several participants, “we may not have an economy on Monday.”

It gets better from there....