August 9, 2007 (LPAC)--Over the past two days, European and U.S. central bankers have opened the floodgates of cheap credit for imperilled banks, contradicting their own "do-nothing" policies announced as recently as this past Tuesday, August 7. In doing so, they have shown that they consider a systemic crisis of the banking system to be an imminent threat.

Lyndon LaRouche said this morning, "This is the crisis I was speaking of in my statement of last week. That has not changed. What has happened is that this crisis has become so much worse in just a few days, that the central bankers have had to reverse their stand. The crisis is overwhelming them."

• On the U.S. side, Bloomberg reports that the Federal Reserve injected $24 billion in temporary reserves into the U.S. banking system today.
• Earlier this morning in Europe, as all interbank transactions were suspended for two to three hours, the European Central Bank convened an emergency meeting on the acute crisis in the credit markets, and decided to provide an extra overnight facility for the 49 banks which had asked for it, totalling just under 95 billion euros ($130 billion). A senior French banking source said the ECB's hand was forced by "intense demand [for money to cover losses] from the U.S." As in the case of the U.S. Federal Reserve, this was a spectacular reversal of their previous policy that nothing should be done against the worsening liquidity "crunch" worldwide.
• The Swiss National Bank had already reversed policy last night, in providing Swiss banks with extra money, according to financial news wires.
• Increasingly widespread reports, though denied by Goldman Sachs, said that that bank's $9 billion Global Alpha fund was being liquidated. Other sell-off rumors pointed to the huge D.E. Shaw hedge fund, "worth" $19 billion in assets.

Already on Tuesday, the ECB had given the go-ahead for a "regular" overnight facility in the range of 292.5 billion euros. Together with available facilities before Tuesday, there are now an estimated 440 billion euros in ECB injection money pumped into the banking system.

Nomura International's head of European rate strategy, Charles Diebel, responded to today's action by the ECB by writing, "No one really knows how big the current credit problems are. This is undermining confidence in the system as a whole, and hence the reaction this morning," Bloomberg reports. Ina Steinke, a money-market trader at NordLB in Hannover, said "Every bank is suspect now, so no one is willing to lend money to anyone."

High Frequency Economics writes, "if it turns out that banks are chronically nervous about lending to each other -- this is the dark scenario -- imagine how they will feel about lending to you or me, or to companies with anything but impeccable credit ratings ... or to hedge funds. Pay attention here. This is either a false alarm or a pivotal moment in history"--as reported by the Wall Street Journal.