A hidden deal between the Fed and Japan's central bank stopped a currency collapse that would have wrecked the US housing and credit markets — good news for American borrowers, bad news for Wall Street.

• Hedge funds borrowed yen at near-zero rates for years and parked the money in US bonds paying 5%, draining Japan and pushing the yen to a 40-year low.
• A weak yen made imported food and energy far more expensive for Japanese families, feeding the country's falling birth rate.
• Japan needed $100 billion to buy its own currency back, but its wealth was locked in $1.1 trillion of US government debt it could not sell without spiking American mortgage rates to 8 or 9%.
• The Fed quietly took Japan's bonds as collateral and handed over the cash, so nothing hit the open market and rates never moved.
• Tokyo dumped the money into currency markets at a thin trading hour, the yen jumped, and the hedge funds were forced out at a loss.

Outlook: The yen has stabilized for now, but the huge interest rate gap and Japan's pile of US debt remain, so the same trade can rebuild.