summary of events

http://freakonomics.blogs.nytimes.com/2008/09/18/diamond-and-kashyap-on-the-recent-financial-upheavals/

This seems like the best summary of things that happened from a pure financial perspective. There were political events involved in the two Macs for example that aren't discussed (and quite possibly provide reasons they were 'weakly supervised'). But by and large this is very in depth explanations for the federal reserve activities of the past few months.

AIG bailout and the current Congressional push for a major bailout both raise some significant questions over what the intention is. I'm not sure if it's create and foster stability (by injecting needed capital investments) or get people to assess risk more appropriately on the financial scene. And the long term effects are probably worse than the present 'cure'. It is unlikely that even with some major investment firms/insurance companies running into trouble in specific elements of their portfolios that the entire American/world economy would go into total chaos. I admit it would be unpleasant, but what would happen is that the 'good' parts of their portfolios would be sold off to competitors in order to secure capital to service the debt portions. People who invested in the companies who acted strangely will get hosed and in the short term we'd have some economic problems (of either FDIC problems or huge amounts of debt piling up that cannot possibly be serviced).

The principle short term fallout is the impending credit crunch, something that's been coming for decades. I suspect that will help curb inflation at least, but will result in some unpleasantness for many people (either trying to buy things or trying to keep their ailing jobs). If that's better than letting this sort of thing play out, I'm willing to see..but in the long run it's almost certainly dumber.