My attempt to answer a reader's long list of questions about the bailout has been condensed into an article in the new TIME (with the soup line on the cover). Barbara also has a piece in the magazine about current consumer credit conditions, which is also condensed from something that ran first online. Meanwhile, the magazine also features an all-star lineup of articles on the crisis from Niall Ferguson, Michael Grunwald, Nancy Gibbs, and Dan Kadlec.

In the meantime, the reader with all those questions--her name is Charlene, and she's from a suburb of Grand Rapids--has some more questions. And so do lots of other people. I don't think I can possibly answer all of them, but here's a selection culled from several reader emails. The first two sets are from Charlene:

(more...)

On the topic of the how, even with the bailout bill (sorry, the rescue package), all of our problems won't be solved overnight, I offer a story I wrote for Time.com today. It starts:

To understand how the credit crunch is hitting American business — and, in turn, you — look no further than The Dog Shop, a pet supplies and grooming store in Washington, D.C. This holiday season, owner Jane Huelle will only stock four varieties of Christmas-cookie dog treats, instead of the usual six. That's because a month and a half ago she got a letter from her credit card company saying her line of credit was being docked by thousands of dollars.

You can read the full thing here.

Barbara!

So this time it passed, and it wasn't even all that close (263-171). After turning down a $700 billion financial bailout plan on Monday, the House turned around and this afternoon approved an even more expensive one--loaded with tax cuts, an expansion of federal deposit insurance, and a now infamous tax exemption for certain toy wooden arrows.

What happens now? Financial consultant Howard Glaser says Treasury hopes to conduct its first reverse auctions for mortgage securities in a few weeks, and will start buying whole loans from troubled regional banks and thrifts soon as well.

But the financial crisis has now gone so global, and the economic situation at home is worsening so quickly, that it has become pretty clear that the TARP, as Treasury calls its plan (for troubled asset relief plan), is just part of the solution. The leaders of Britain, France, Germany and Italy are meeting in Paris Saturday to see if they can come up with a joint plan of attack to deal with the crisis. And here in the U.S., it's hard to imagine that we won't still be struggling with tight credit, bank failures, and a worsening economy two or three or four months from now.

The upside is that TARP gives Treasury Secretary Hank Paulson more resources with which to battle the meltdown. Of course, that's also the downside if you either (a) don't trust Paulson with that kind of power or (b) think buying mortgage securities is the wrong approach. I'm okay on (a), but I don't think even Paulson is absolutely sure he's right on (b).

I'll leave you with a cheery forecast from Paul Kedrosky:

Some time after the U.S. presidential election, with credit markets still a mess, banks failing all over the landscape, and no real end in sight, we will likely see the new president pull together some sort of TARP II commission. What should we do, post-Paulson, to prevent this crisis from further deepening and continuing? Top of the agenda will be further fiscal stimulus, and, in all likelihood, an explicit recapitalization of the banking system, with government picking favorites.

So now federal regulators are in a bit of a bind. If they let Wells Fargo ride in and snatch Wachovia out from under Citigroup, they get a better deal for taxpayers—an industry-on-industry solution with no government backstop.

But that might send a dangerous signal to the market. Setting aside the issue of whether or not a Wachovia-Wells deal would be illegal under the terms of the agreement Wachovia made with Citi, we're still left with the situation where deals made under the direct supervision of the feds are subject to change. Citi came to the rescue of Wachovia in the middle of the night. If the deal they reached is allowed to be shoved aside, what happens the next time Citi, or another potential white knight, gets the call for help?

I've already been having some shaky feelings about how comfortable we are at changing the rules of the game these days—short selling bans, mark-to-market accounting rule rewrites, discussion about letting judges adjust first mortgages in bankruptcy court.

Desperate times call for desperate measures, I know. But when it comes to something like the enforceability of contracts, isn't that bedrock to the whole notion of capitalism?

Barbara!

The House is expecting to vote on the big bailout (oh, sorry, rescue) bill around 12:30. Jay Newton-Small has a story up on TIME.com explaining that the fiscal-conservative Blue Dog Democrats in the House, who mostly supported the bill on its first go round but are ticked off at all the junk the Senate added to it, may be crucial to its success.

Blue Dog chairman John Tanner got up and spoke on the House floor a little while ago. He said he was filled with "disgust" at what "the other body" (the Body-That-Must-Not-Be-Named) had done, but he still voted yes.

Then one of the Nunes boys from Tulare got up and said something about how when times were good the Wall Streeters wanted Washington to leave it alone, and now that times are bad they want Washington to nationalize their debts (I had typed out the exact quote but deleted it by mistake). Which is absolutely correct. And I'm not just saying that because I was a reporter for the Tulare Advance-Register when Devin Nunes was a sophomore at Tulare Union High. He's voting no, by the way.

So is Pete Stark, a former banker who was elected to Congress in 1972 on the strength of his opposition to the Vietnam War (I remember his bank HQ in downtown Walnut Creek, Calif., used to have a big peace sign painted on it). Although he used the whole this-is-the-Iraq-war-all-over-again argument, which I think is pretty silly. I don't care which way you vote, I just want you to make cogent arguments, people!

Ooh, but Republican Gresham Barrett of South Carolina is changing his vote to yes.

Anyway, there's no point in doing a blow-by-blow. I think this is gonna pass. Not that I know anything.

Update: Barney Frank, after a Jeb Hensarling warning about the bailout's socialistic tendencies: "Ever mindful of the danger that George Bush will lead us down the road to Socialism, we will be monitoring this very closely."

Update 2: Wisconsin Republican Paul Ryan has a big chart of the TED spread next to him as he speaks! So cool!

Can we stop saying now that financial troubles "might" tip us into a recession? As this morning's employment numbers (and a lot of other data in recent days) make clear, we're in a recession. I'm still betting that the arbiters of such things will eventually decide we've been in a weird, mild recessiony kind of thing since last fall. Now the weird and mild (and the y) appear to be disappearing. We're in a recession. The question that remains is how bad it's going to be.

In a fascinating turn of events that we'll surely all learn more about over the course of the next few days, Wells Fargo--which had been about to buy Wachovia a week ago and then backed down, forcing the FDIC to bankroll a shotgun acquisition by Citigroup--changed its mind and agreed to pay $15 billion for the giant bank.

This time the FDIC isn't part of the deal. So that $312 billion Wachovia loan portfolio that the FDIC agreed to share losses on with Citi (Citi agreed to take the first $42 billion) is now completely Wells Fargo's responsibility. Although of course we taxpayers are all on the hook for Wells Fargo's losses in the same way we're on the hook for any bank's.

The encouraging part here is that instead of a combination of two ailing banks engineered by a government agency we get an outright takeover by one of the healthiest big banks in the country. A big bank whose biggest shareholder is Warren Buffett (who bought in during the country's last banking crisis, in 1990). And a bank whose chairman, Dick Kovacevich, is widely thought of as the smartest guy in the banking business.

The deal would leave a competitive landscape with three giant national retail banks--JP Morgan Chase, Bank of America, and Wells Fargo--leaving Citigroup as a sort of odd man out, with big global and investment operations but not nearly the domestic branch network of the Big Three. Oh, and it leaves Kovacevich, who left Citi in 1985 after losing out on a promotion, thoroughly vindicated.

For now at least. The one thing about the Wells-Wachovia deal that worries me is that it creates an entity awfully exposed to California real estate (it was Wachovia's acquisition of California thrift Golden West--a.k.a. World Savings--that got it into trouble in the first place).

Oh, and one thing about the new Big Three that I find interesting: Their names are all brands they picked up along the way from banks they acquired. If I've got it right, they're really Chemical, Nationsbank and Norwest.

Update: Charlie Gasparino is reporting on CNBC that Citi is very ticked about this. Will it try to block the deal? We'll see.

Update 2: The WSJ reports that Citi may sue, or may make a new bid. A bidding war! In the middle of a financial meltdown! That's pretty cool.