Market Turmoil Will Test the Post-Crisis Financial System – NYTimes.com.
Washington has been trying to bolster the financial system for the last five years so it can deal with mayhem in the markets. The turmoil this week will test those rebuilding efforts.
Investors, after months of piling into risky markets in search of returns, are now stampeding out.
In recent weeks, they have dumped junk bonds issued by American companies, particularly energy companies that have borrowed heavily to exploit the shale oil boom. A steep slide in the price of oil could now cause some of the companies to default, analysts say.
The most dangerous pain, however, is occurring abroad. Russia has a full-blown currency crisis, caused partly by the oil price decline. And oil’s move has fed fears about other countries. Turkey’s currency reached a record low on Tuesday, and Brazil’s currency has weakened sharply in recent days. Venezuela’s government bonds have plunged to levels that indicate that investors think a default is probable.
