Unfolding Worldwide Turmoil Could Reverse Years of Prosperity

Traders work at the Brazilian Mercantile and Futures Exchange in Sao Paulo. Brazilian stocks plunged the most in a decade as commodity producers dropped, and trading was halted twice because of the decline. (By Marcos Issa -- Bloomberg News)

Treasury officials say that ramping up the rescue package will take time, and that they are working as fast as possible.

Yesterday, the department released the contracting rules for the asset managers they expect to hire to oversee its rescue program, requiring interested parties to apply by tomorrow. The Treasury also named Neel Kashkari as the interim assistant secretary of the Treasury for financial stability to oversee the rescue program until January, when the next administration takes office.

Despite the mammoth bailout, Zoellick and other leaders are now urging central banks from the leading economies to devise a coordinated response.

They don't have a lot of time.

It's been nearly three weeks since Federal Reserve Chairman Ben S. Bernanke warned lawmakers that the nation was at risk of a full-blown meltdown.

Since then, the same problems have afflicted Europe. Governments have bailed out five large financial firms, including two this weekend, triggering fears of additional bank collapses in Europe.

Hypo Real Estate, a German real estate lender, is collapsing under the weight of its own bad loans, forcing the German government and leading banks to announce Sunday that they would lend the company up to $68 billion.

The rescue follows the nationalization of one of England's largest real estate lenders, Bradford & Bingley. Iceland also rescued one of its largest banks, Glitnir. And several European countries were forced to invest billions of dollars in Fortis, one of the largest banks on the Continent, in an ultimately unsuccessful effort to stave off its collapse. Fortis, too, has now been nationalized.

With confidence in banks basically shattered, governments increasingly have been forced to issue explicit guarantees that bank deposits will remain safe.

Ireland last week guaranteed all deposits and liabilities, totaling about $540 billion, at six domestic banks. The pledge included branches of the six banks outside of Ireland, and excluded branches of other banks in Ireland, raising concerns that deposits would now flow from rivals into the coffers of the six government-protected banks as investors flee to safety.

Germany promised Sunday to guarantee all private savings accounts, which hold at least $800 billion. Denmark yesterday announced that it would guarantee all deposits, as well.

The economies of Ireland and Denmark have officially fallen into recession. Investors meanwhile are worried that Pakistan and Argentina might default on their debts. In India, the average interest on loans between banks jumped above 11 percent, reflecting a breakdown of trust.

The bailout has not even thawed critical segments of the U.S. credit markets.

U.S. corporations sold $1.25 billion in bonds last week, marking the sharpest drop in sales volume since 1999, according to Bloomberg. Short-term commercial borrowing fell to $1.6 trillion, down 9 percent in the past two weeks, almost entirely because of a massive decline in borrowing by financial companies that cannot find lenders at any price.

September saw the worst monthly losses in the history of the hedge-fund industry. Investor withdrawals could lead to the collapse of major funds, triggering further sell-offs and exacerbating the financial crisis.

Investors are also increasingly concerned that more U.S. banks will fail before the Treasury can launch the rescue program. Shares of National City, a regional bank based in Cleveland, fell 27 percent yesterday.

Bank of America said its third-quarter profit fell 68 percent, largely because of losses on mortgage loans and credit cards. The company reduced the dividend on its widely held shares by half and said it would try to raise another $10 billion from investors. Its shares were down about 7 percent, to $32.22.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," chief executive Kenneth D. Lewis said in a conference call.