Investment banks: As available credit froze, even the strongest of the independent investment banks were affected. To avert bankruptcy, Bear Stearns was bought out by commercial bank JPMorgan Chase. (JPMorgan Chase also bought the bulk of Washington Mutual’s operations after the Seattle thrift failed.) Lehman Brothers filed for bankruptcy, and Merrill Lynch was purchased by Bank of America. Finally, Morgan Stanley and Goldman Sachs were granted permission to convert to traditional commercial banks. The move gives the two firms more flexibility to take advantage of the Fed’s safety net, while subjecting them to the additional government regulations associated with commercial banks.

Money market fund guarantees: The Treasury Department has also said it will issue government insurance for existing investments in money market funds to reassure investors that their assets will remain safe in those accounts. President Bush himself reassured investors, saying that, “For every dollar invested in an insured fund, you’ll be able to take a dollar out.”

Crisis Cleanup

President Bush, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke worked with Congress to approve the federal government’s purchase of illiquid assets, such as troubled mortgages, from banks and other financial institutions at below-market rates. The intent of the program was to address the underlying weakness throughout the financial system, take these loans off the books of banks, and free up liquidity so the markets could start moving again.

Despite the staggering numbers attached to recent government actions and proposals, no one knows for sure how much the bailouts will end up costing American taxpayers. In the meantime, the interest on the borrowed billions will be added to the national debt.

Paulson argued that specific intervention in the markets was necessary to help overcome the crisis and allow the economy to move forward. “The biggest help we can give the American people is to stabilize our financial system right now and to prevent the system from clogging up, because if it does clog up, this is going to have an adverse effect on people’s abilities to get jobs, on their budgets, on their retirement savings, on lending for small businesses.”