Fund outflows escalated rapidly, threatening the stability of short-term funding to businesses and municipalities. Confidence in money center banks plummeted, as was the case a century before. And market participants lost trust in their counterparties. Extraordinary actions, however, have been taken – with some notable success – to lessen panic conditions.
Panics involve losses of confidence in the financial system, when even sound firms find it difficult to borrow. Panics are threatening to economic well-being. Panics take even less kindly to, and often result from, uncertainty. And panics place a greater burden on the deftness of policy responses than recessions alone.