Here's my take on it.

The bail-out package should mitigate the problems, but it will not avert them. To date governments have been dealing with the problems one at a time. They have struggled to gain control not just because of the speed of contagion but also because politicians and central bankers do not fully to understand the breadth and depth of the crisis. For example, Germany’s finance minister declared on September 25th that America was “the source and the focus of the crisis”; the governor of the Bank of France declared “there is no drama in front of us”. Since then several European banks have been failed-out.

The problems have also hit banks outside the US and Europe in Hong Kong, Russia and India. Some European countries, including the British, Irish and Spanish banks, also have housing bubbles.

Governments need to co-ordinate. Unfortunately Greece has probably prevented or delayed the French sponsored European EUR300bn plan by following Ireland and guaranteeing all deposits.

The money markets are the plumbing of the financial system. Banks and companies lend and borrow trillions of dollars for up to a year at a time but the markets for longer term paper are shutdown, so banks and companies must borrow even more money overnight than usual. Investors are unwilling to lend for long, many companies are unable to sell any commercial paper with a maturity longer than overnight. Those that have lines of credit with banks are increasingly drawing on them. This is causing the banks more problems.

Companies face higher interest charges and are also losing access to bank loans altogether. So they also hoard cash, cancelling acquisitions and investments, in order to pay down debt, delay new products, leaving factories unbuilt, shut loss-making divisions, and cut costs and jobs. They will no longer extend credit and loans will become harder to obtain and more expensive, unemployment will rise. Private-equity groups that bought companies with leveraged buy-outs will find it harder to refinance their debts.

Bank borrowing costs reached almost 7% on September 30th, more than three times the level of official American rates, while some were willing to pay 11% to borrow dollars from the European Central Bank (ECB). Banks have become so risk-averse that they deposited EUR44bn with the ECB on September 30th (quarter end) even though they could have earned far more by lending to other banks.

Over the coming weeks the CDS market faces its biggest test as billions of dollars worth of contracts on Fannie Mae, Freddie Mac, Lehmans and WaMu are settled. An auction is scheduled for next Tuesday to evaluate a price for Fannie Mae and Freddie Mac CDs. Estimates are that payments on Lehman's bonds could be as much as $350bn. I fear that some underwriters have insufficient capital and will simply go bust when the claims are made.

Interestingly Buffet has just pumped USD3bn into GE; I would be reluctant to bet against Buffet!

I just heard that Fannie & Freddie contributed over $200m to congressmen, they were one of the biggest lobbyists. Why the heck is there so much money swilling around in US politics??