THE POLITICS OF THE FINANCIAL CRISIS

In the blinding blizzard of numbers that blew through the media this week, two stood out as especially scary: 133 and 95. That was the count of House Republicans and Democrats, respectively, who on Sept. 29 voted against the $700 billion bailout plan, sending it to a defeat that astonished the world and terrified Wall Street. The Dow plunged nearly 7% and the S&P 500 9%, though both recovered more than half those losses the next day.

The question then became how to persuade enough of the naysayers to switch their votes. The Senate, where support for the plan was stronger, adopted a tried-and-true congressional tactic: load up the bill with goodies. Having tacked on a grab bag of business and individual tax breaks worth $100 billion and boosted federal deposit insurance from $100,000 per account to $250,000, the Senate was expected to pass the plan on Oct. 1. The House intended to try again on Friday as all parties held their breath.

But even renewed hope for the bailout couldn't grease the gears of the credit markets. The seize-up that began in earnest after the Lehman Brothers failure continued to spread, with many businesses finding that loans are either dizzyingly expensive or impossible to obtain. Nonfinancial companies began drawing down their lines of credit, fearing they'd be shut out of their more usual channels for capital, such as the commercial paper market. The Fed did its best by committing an additional $630 billion to the global financial system, but rates barely budged, and the squeeze threatened to throttle the economy.

Meanwhile, big banks kept falling, as lowly regulators brokered deals like Masters of the Universe. On Sept. 25 they seized Washington Mutual, the nation's largest thrift, and orchestrated a sale of its assets to JPMorgan Chase ) for $1.9 billion.Four days later the G-Men arranged for Citigroup ) to acquire the banking operations of Wachovia and absorb up to $42 billion in potential mortgage losses. Regulators say neither deal will cost taxpayers a penny.

A similar scenario played out across the Atlantic. Britain partly nationalized mortgage lender Bradford & Bingley on Sept. 29, taking over its $72 billion loan book and selling its retail operations to Spanish bank Santander ). On the same day, Dutch, Belgian, and Luxembourg authorities bought a 49% stake in struggling Benelux bank Fortis for $16.2 billion, shortly after ousting interim CEO Herman Verwilst. Germany's central bank ponied up a $50 billion state-backed credit line for commercial real estate lender Hypo Real Estate Group. And on Sept 30, Franco-Belgian bank Dexia got a $9.2 billion injection from three governments.

PAGE 020 "A Financial Ice Age Dawns"

PAGE 024 "Europe Heads South"

PAGE 28 "An Early Warning System for Banks"