[jyl]

I have not read the articles, and I will. But there is a feedback loop between the markets and the economy, and it is a stronger loop when financial institutions are so over-extended and over-leveraged. If stocks and bonds plunge hard enough, that in itself will drive financial institutions over the edge, and when financial institutions collapse that will cut off credit that non-financial companies and consumers need to operate. The financial and real economies can spiral downward.

The Fed and Treasury were (still are) trying to slow that feedback loop and allow the necessary de-leveraging to happen in a more controlled, less panicked way. It is not a coincidence that the real economy really took a dive in October after Lehman was allowed to collapse.

I think the history books for 2008 will record that in that year the US govt was faced with an accelerating global financial crisis, which unchecked would have ended in a broad collapse of most of the world's major financial institutions and a rapid repeat of the 1929 crash and subsequent Great Depression on a worldwide scale. The situation was beyond the personal experience of any living regulator, investor, or economist. However, the new Fed chairman was one of the world's experts on the Great Depression and the new Treasury Secretary was willing to take big bets. The US govt as well as many other govts took rapid, radical, and costly actions to stabilize asset values and support financial institutions. These actions included many expensive mistakes, both in what was done and what was not done. But by the end of 2008, the global financial system had been stabilized and the world was in a severe recession but not a depression.

Hopefully the history books for 2009 will record that the severe recession ran its course and the world, particularly the US, emerged to at least modest recovery in 2010. We'll see. All we know right now is that the world's govts have managed to force a pause in the negative spiral.