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Hans
11-07-2007, 07:44 PM
NEW YORK (Fortune) -- What the heck's happening to our financial system?

That will be a question many people will be asking after Washington Mutual shares plunged 17 percent in a single day. This after all is an industry-leading bank with over $320 billion in assets.

Seattle-based WaMu was whacked by two pieces of bad news on Wednesday.

The CEOs of Merrill and Citi have departed their posts, leaving leadership vacuums and more opportunity for infighting at those two banks.

The most sobering thought about the credit crunch so far is that it's happened without anything approaching a recession. Difficulties in the financial system could slow the economy and that in turn that would create new losses at the banks.

If it wanted to, the Federal Reserve could just cut interest rates and cheaper borrowing costs would help the banks and spark economic activity. But with the threat of inflation and the weak dollar, the Fed doesn't have much room to maneuver.

Sorry, but we're only just moving into the second act of the credit crunch.

http://money.cnn.com/2007/11/07/magazine...sion=2007110718 (http://money.cnn.com/2007/11/07/magazines/fortune/credit_crunch_parttwo.fortune/index.htm?postversion=2007110718)