I'm not any kind of expert nor do I pretend to be. However, I do study world financial markets at least 2 hours a day Monday through Friday and have done so for several years now. I just listened to the scariest financial news in my lifetime while listening to several experts talk about unregulated and totally secret credit default swaps worldwide.
The only good news I heard is that contained within the 700(850) billion dollar bailout rescue package is the option of Paulson to make U.S. taxpayers preferred stockholders of any banking institution they fund(sort of like what happened with AIG).
Credit default swaps look something like this: imagine all banks are people who secretly bet on things(sort of the way people bet on football games among friends). Only this time they are betting whether stocks or companies are going to tank. This is called hedging your bet. However, the reason banks worldwide are not lending money to each other is mainly because of Lehman Brothers. When that institution was allowed to collapse many leveraged debts were lost and there was no money to cover the bets because of leverage. Now, if you have studied history it was individual leveraged investors who caused the great depression. This time it is secretly leveraged banks worldwide. And they are not lending to each other because they don't know what secret bets(wagers)(insurance?) have been made because they are all secret and unregulated.
Imagine (10,000 people) in reality banks worldwide secretly bet 1 billion each that Lehman Brothers wouldn't fail but only had 200 million each to cover their bet. But as long as Lehman brothers didn't fail they made 20 million dollars a month profit as their insurance fee. But when Lehman brothers actually was allowed to fail 10,000 banks didn't have 1 billion dollars to pay up on their secret hedging bet with whoever, they only had 200 million each. Do 10,000 banks have to fail now? Here is where we are theoretically. However, the real picture is much worse than this.
It is worse because this whole thing worked REALLY well as long as the value of everything(stocks, real estate, everything invested in) went up. But when it started to go down to the point where investment banks and regular banking institutions worldwide started to fail it affected everyone and it will continue to affect everyone for months and years to come(at least 10 or more).
Like I said the ONLY positive thing now even with all these things going on is that if Paulson allows taxpayers to own failing institutions with preferred stock then when things turn around all the profits will belong to the taxpayers of the United States.
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