A year from now, this will be the year many will remember as when they expected another big global financial market adjustment following 'Black Monday' in 1987 and the Asian financial crisis in 1997. As with all such corrections, the adjustments have different roots and varying degrees of impact.
The United States Federal Reserve on Friday last week surprised the market by reducing the rate at which it charges banks to borrow from it - the discount rate.
However, more noticeably and much less understood, the US central bank provided additional borrowing flexibility by increasing the maturity of such loans to 30 days (normally the discount window only provides overnight loans) and expanding the types of acceptable collateral.
In my opinion, the Fed's decision 'to accept a broad range of collateral for discount window loans, including home mortgages and related assets' was a direct message to banks and investors of its willingness to shore up confidence in the structured finance markets.
While it is clear that market liquidity has temporarily dried up for several segments in the fixed income markets - asset-backed commercial paper, collateralised debt obligations, mortgage-backed securities backed by subprime mortgages, etc - the massive amounts of liquidity in the capital markets have not disappeared permanently.
Instead, the leading providers of liquidity, commercial banks and institutional investors, have backed off by not lending or investing in these sectors temporarily.