“Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion — yes, with a t — of the firms’ debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders. While we’re trying to get our heads around what amounts to the biggest debt transfer since money was created, Lehman Brothers goes broke, and Merrill Lynch feels compelled to shack up with Bank of America to avoid a similar fate. Then, having sworn off bailouts by letting Lehman fail and wiping out its shareholders, the Treasury and the Fed reverse course for an $85 billion rescue of creditors and policyholders of American International Group (AIG), a $1 trillion insurance company. Other once impregnable institutions may disappear or be gobbled up…”

“…How did we get here? How do we get out of it? And what does all this mean for the average joe? So take a deep breath and bear with us as we try to explain how financial madness overtook not only Wall Street but also Main Street. And why, in the end, almost all of us, collectively, are going to pay for the consequences.”
[How Financial Madness Overtook Wall Street via TIME]

Unveiling its plan to rescue the nation’s financial system from near-paralysis, the Bush administration is asking Congress for the authority to spend $700 billion and for powers to intervene in the economy so sweeping that they have virtually no precedent in U.S. history. The proposal , set out in a spare 2 1/2 -page document sent to congressional leaders Saturday, would in effect allow the Treasury secretary to set up a government investment bank to buy up the billions of dollars of the mortgage-backed securities now clogging the arteries of the global financial system.

The dollar figure alone is remarkable, amounting to 5% of the nation’s gross domestic product. But the most distinctive – and potentially most controversial – element of the plan is the extent to which it would allow Treasury to act unilaterally: Its decisions could not be reviewed by any court or administrative body and, once the emergency legislation was approved, the administration could raise the $700 billion through government borrowing and would not be subject to Congress’ traditional power of the purse.”

[Tab for financial bailout: $700 billion via LA Times]

Washington is racing to pass a historic intervention – and there are still more questions than answers. [$700B bailout: The latest via CNN]

“Let’s assume for now that Paulson finds a mechanism to extract the poison from the banks, without enfeebling them in the process. Can we all then breathe a sigh of relief and assume our economic prospects will improve markedly? Sadly, I don’t think so. Banks, money managers, controllers of trillions of dollars on behalf of the cash-rich states of Asia and the Middle East have all had a painful lesson in the meaning of risk over the past fortnight. They will for an extended period – possibly years – be less willing to fund our banks without demanding a significant increment in what the banks pay them. That’ll increase the cost of money for all of us, which will make most of us feel quite a lot poorer for some time. Also, you can kiss goodbye to the kind of financial creativity, innovation and competition that accelerated the growth of the UK and US economies over the past few years.” [Preston’s Picks via BBC News]

The UK prime minister said on Sunday that one of the lessons from the global financial crisis is the need for international regulation to be brought up to date. Gordon Brown told the BBC: “We’re in a new economy, a global financial economy, the world is changing very fast, but the governance of the global financial system has not caught up with it and that’s what’s got to change.” [Paulson wants a speedy debt deal via BBC]


Latest Breaking News Alerts from the The New York Times:

Saturday, September 20, 2008
Rescue Plan Seeks $700 Billion to Buy Bad Mortgages
The Bush administration is asking Congress to let the government buy $700 billion in troubled mortgages, according to a draft of the plan. The proposal would raise the statutory limit on the national debt to $11.3 trillion from $10.6 trillion.

Friday, September 19, 2008
Week of Tumult Ends With Stock Surge
Responding to moves by the Federal Reserve, the S.E.C. and the Treasury to stabilize money markets, investors bid stocks up sharply on Friday. The Dow Industrials closed with a gain of about 370 points.

Friday, September 19, 2008
S.E.C. Issues Temporary Ban on Short-Selling
The Securities and Exchange Commission issued a temporary ban Friday morning on short sales of 799 financial stocks, following a similar action in Britain the day before. Short selling — a bet that a stock price will decline — has often been blamed for forcing prices down in times of market stress.

Thursday, September 18, 2008
Dow Swings Back, Closing Up About 400 Points
Investors jumped back into the stock market Thursday afternoon after the world’s central banks embarked on a coordinated effort to ease the fear coursing through the global financial system, sending the Dow industrials up more than 400 points. Still, there was little relief from the paralysis that has gripped the credit markets.