Credit problems have spread beyond home mortgages to those with blemished credit histories and are now troubling other borrowers. Nervous lenders have tightened credit standards, making it more difficult for individuals and companies to find financing.
Against this backdrop, Goldman Sachs last week pumped $2 billion into one of its struggling hedge funds and was asking other investors to put in another $1 billion. BNP Paribas, France's largest bank, two weeks ago froze three funds that had invested in the troubled U.S. mortgage market.
Investors, meanwhile, have been plowing money into safe havens such as short-term Treasury bills, driving down yields sharply.
The central bank last week sliced its discount rate - the rate it charges banks for direct loans - to 5.75 percent.
Fed officials also have been urging banks to borrow from the Fed's so-called discount window, trying to remove a stigma that is a place for banks to turn to only in times of emergency or last resort. The Fed is now allowing loans of up to 30 days versus the normal one day.