Bank Bailout

British mortgage bank HBOS fled into the arms of Lloyds TSB; Morgan Stanley is casting about for a savior, as is the largest American savings and loan bank, Washington Mutual. Whereas banks such Lehman Brothers are being sacrificed to the turmoil on the markets, other institutions like the international insurer American International Group (AIG) are being rescued. And that begs the question: Who will be the next to go down?

The best advice is, save yourself if you can. Because without a doubt, this is the biggest crisis since the crash of 1929, which plunged the world into a depression, saw countless firms file for bankruptcy, brought massive unemployment and put wind in the sails of those who sought political gain.

The financial markets are out of control. Only the mistakes and excesses of the boom are being corrected. For too long, people thought that the only way would ever be up, that wealth without work was possible.

Many speculators even managed to accrue wealth in this way. The bubble has long since been recognized but the realization that every bubble -- whether on the financial market, the property market or the raw commodities market -- has to burst sometime. That's exactly what's happening now. The time in which greed superseded reason is over -- for now. Security is what's needed; the price of gold is jumping like never before.

Governments keeping their cool

In contrast to the players on the financial markets, governments and central banks are keeping a level head. Banks and insurers, whose demise would not just shake up global financial systems but could bring them down like dominos, are being saved.

AIG, one of the world's largest insurers with more than 100 million customers in 130 countries is being rescued by state intervention. The reason: Too many Americans would have lost their retirement savings had the company collapsed. Aside from this, AIG is a big credit insurer for banks around the world. Its demise could have triggered a core meltdown in the global financial system. In comparison, the collapse of Lehman Brothers, the third-largest American investment bank, was painful, but survivable.

What this means, though, is that while the financial markets are shaky and the stock exchanges are up and down, governments and central banks haven't let themselves become infected with the general sense of insecurity, rather, they've acted decisively.

The financial markets are literally being flooded with dollars, euros, yen, pounds and rubles to keep the systems running. US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are working on a solution which would involve creating a government-sponsored vehicle to relieve American financial companies of their toxic investments.

Greater regulation needed

So the state emerges as the savior. Initial news of the bailout led to a swift recovery. First, profits were privatized and now, losses are being socialized. With the banks saved, the whole game can start over again. That is, unless the government makes stricter regulations for the financial sector part of its rescue program.

The sector is always willing to be bailed out, but most unwilling to have regulations imposed on its business dealings. But without stricter monitoring and regulation, such a bailout will only plant the seeds for the next bubble on the financial markets to grow.

Karl Zawadzky is DW-RADIO's business editor (dc)