September was a dramatic and turbulent month for financial markets as the credit crunch entered its most acute phase to date. The FTSE 100 Index, down 12.9%, recorded its worst monthly performance since the 1987 crash. The FTSE 250 Index fared no better, down 15.6%. The FTSE All Share Index was down 13.2%. The fund was down 18.4%. During the month the FTSE 100 experienced its 8th biggest one day fall in history (-5.3%), plus its biggest ever one day gain (+8.8%).Yields on short term treasuries fell to just 0.02%, their lowest level since the Second World War. The VIX-a measure of volatility and fear-reached its highest level since records began in 1990,whilst another fear gauge,the spread between US Libor(the rate at which banks will lend to each other)and the Fed Funds rate,pushed to an all time high,higher than during the Black Monday crash of 1987 and more than four times what it was in March this year,the month in which Bear Stearns collapsed.Fear within the banking system meant that money and credit markets almost ground to a halt, leading to a series of high profile financial company collapses or near collapses / bail-outs. In the US - Fannie Mae and Freddie Mac (nationalised), Lehman Brothers and Washington Mutual (bankrupt), Merrill Lynch (sold), AIG (Gov't bail out). In the UK - Bradford and Bingley (nationalised), HBOS (sold to Lloyds - not a done deal). In Europe - Fortis, Hypo Real Estate and Dexia.Government intervention didn't stop at bail outs. Short selling of financial stocks was banned in the US, UK and elsewhere; stock markets were closed in several markets including Russia and Brazil; massive liquidity injections were provided, most notably by the US; guarantees of banking systems were made (Ireland) and deposit guarantees extended (many). In addition, the US proposed a $700bn rescue package designed to underpin the banking system by buying up 'toxic assets'.
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