I'm getting whiplash from trying to reconcile the reality of the radical, emergency US Government intervention in financial markets, and the news media's fixation on the DJIA and other snapshot market indicators.  Of course, this is perfectly captured by Drudge's huge font banner "DOW Ends Week Down 34!!! "

(By the way... I'd like to know how much of the Friday bounce was a one-time move driven by desperate short-sale covering after the SEC banned investors from short-selling 799 financial companies, which drove other short traders to cover positions in non-finacial stocks as well.)

Bush is asking for $700 billion for the bailout of worthless mortgages and other bad debt held by tottering institutions--a jaw-dropping figure that does not include the hundreds of billions already spent to prop up FannyMay/FreddyMac, take over AIG, and pump Fed money into markets.

Whether or not you agree that the US Government ultimately had no choice for the actions it took this past week, there should be no doubt that this crisis is far from over, and the implications for the US economy, financial markets, job, and the US taxpayers are far from clear.  The price tag for this crisis is likely to top $2 trillion over the next five years--dwarfing the $160 billion cost of the last major crisis in financial markets, the S&L debacle of 1986-91.  It will likely mean a net 2% decline in GDP growth over the coming year, with broad implications for state and local tax revenues.

I view the USG's actions as a financial version of the "surge" in Iraq--a necessary move to avert imminent disaster that does little to change the underlying fundamentals of the crisis.  And like the war in Iraq, I'm loath to give them credit for grabbing the steering wheel to avert the fall off a cliff when the focus should be on why they travelled this rutted, misguided course in the first place. 

I'd like to see politicans, government officials, and financial experts answer a few questions:

<b>Why did the Fed and Treasury department wait for a year before decisive action in the mortgage crisis?</b>  I'd wager a lot that early relief for home owners facing foreclosure would have cost a lot less than the trillions of dollars we are about to spend--and keep in mind that the intervention of the past week does nothing to slow the rate of foreclosures and decline in home values. By the end of August, 9.2 percent of all US home mortgages were either seriously deliquent or in foreclosure--that is a mind-boggling statistic.  Nationally, new foreclosure filings during in August increased 12 percent from the previous month and a 27 percent increase from August of 2007--a record.  It's not getting better--it's getting worse.

<b>Did Fannie, Freddie, and Wall Street mix subprime mortgages with high-quality "regular" mortgages in collateral debt obligations (CDOs), aka "Mortgage-backed Securities," despite the vastly different risk profiles? </b>  It certainly seems they did, and if that is the case, why isn't illegal?  One of the FIRST new regulations I'd like to see are some requiring that future CDOs only bundle mortgages with the same risk ratings--and to do that, the regulators have to have the budgets and staff to review and enforce credit-worthiness criterion for loan evaluation across the entire industry.