Blogs: Financial Doom and Gloom

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Mike Shedlock at Mish's Global Economic Trend Analysis wrote: "I suspect the ratings agencies will be asked to not downgrade AIG. I also suspect the rating agencies will honor the request citing unfair stress or some other nonsense. The hope will be what it always is: to buy time."

More Banks on the Brink

Noting that currency traders are worried about AIG, Joseph Lazzaro at BloggingStocks wrote: "U.S. officials will be monitoring AIG, given the large role it plays in credit default swaps: the goal most likely will be to stabilize AIG to prevent CDS-related panic selling."

Peter Cohan at BloggingStocks takes a jab at John McCain's chief economic adviser Phil Gramm for the bill amendment that sparked the huge growth in the CDS market, which is 48 times bigger than the $1.3 trillion worth of subprime mortgages and a key reason for Lehman's demise. "Since nobody has ever had to deal with this volume of CDS unwindings, it is impossible to calculate how much they will cost," Cohan wrote.

Another bank that seems headed for demise is Washington Mutual (WM), with the shares now trading at a measly 2.22. "The alert have taken note that the failure of Washington Mutual, which looks increasingly likely, would consume the FDIC's reserves and, as in the savings and loan crisis, force the agency to go hat in hand to Congress for more money," wrote Yves Smith at Naked Capitalism on Sept. 15. "The concern is that uninsured depositors will flee weak banks, and in process, push more over the edge."

The CEO Pay Angle

In the chaos, with thousands of Lehman and Merrill employees at risk of losing their jobs, some CEOs will probably come out with hefty pay packages. Paul Kedrosky at Infectious Greed points to a New York Times story saying that with the Bank of America (BAC) deal, Merrill CEO John Thain's employment contract change of control clause will be triggered, giving him $25 million in total compensation when he leaves Merrill after 10 months on the job. "That's impressive enough, but it's doubly so when you consider he got packaged out of the NYSE with just shy of $20-million not quite a year ago," Kedrosky quips. "Apparently Thain has turned executive exits into a business model."

On the morning of Sept. 15, Ritholtz at The Big Picture reflected about the "terrible lessons" learned from the interventions of the Fed and Treasury Dept. in the bailout of Bear Stearns. He starts with, "You have to threaten to bring down the entire global financial system" and concludes that "The only thing that matters is the firm's balance sheet."

Taking a somewhat calmer approach, Kedrosky at Infectious Greed thinks the initial reaction to this major financial event is "more emotional than substantive." He writes: "Untangling the consequences of today's once-in-a-lifetime unraveling will only be seen over the coming weeks and months. We have insidiously complex and interconnected markets, and the old days of being able to readily detect all the co-moving parts are long gone."

McCormack is senior producer for BusinessWeek.com's Investing channel.