Harold Maass of The Week The Best of Today's Business

NEWS AT A GLANCE

Global financial system reacts to U.S. meltdown

Facing tumult in financial markets, the Federal Reserve said it will allow Wall Street firms to use risky assets, such as equities and junk bonds, as collateral for emergency loans. It also got 10 major banks to contribute $7 billion each to an emergency borrowing facility. (The New York Times) European and Asian central banks said they are ready to act, too, if needed. (Reuters) Markets in Japan, Hong Kong, and South Korea were closed today, but other Asian markets closed sharply lower, and Europe was solidly in the red early today. (AP in Yahoo! Finance) "The tectonic plates beneath the world financial system are shifting, and there is going to be a new financial world order that will be born of this," said Peter Kenny at Knight Capital Group. (Bloomberg)

Lehman files for bankruptcy

Lehman Brother filed for Chapter 11 bankruptcy protection after weekend talks with potential suitors, notably Barclays and Bank of America, fell apart. The collapse of the 158-year-old firm, the No. 4 U.S. investment bank, is the largest bankruptcy filing in history, with $613 billion in listed debt. (Bloomberg) "Lehman decided to play chicken with the market, and they lost," said James Ellman at hedge fund Seacliff Capital. The bankruptcy filing doesn't cover Lehman subsidiaries, which are expected to be liquidated. (Reuters) U.S. officials, including Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson, worked to broker a deal but said the government would not bail out Lehman or backstop its assets. (The New York Times)

Bank of America buys Merrill Lynch, AIG falters

Bank of America agreed to buy Merrill Lynch in an all-stock deal worth $50 billion. The price, $29 a share, is 70 percent higher than Merrill's stock price Friday; Merrill traded at $50 a share in May and more than $90 a share in January 2007. (Reuters) The merger will make Bank of America, already the largest U.S. consumer bank, the No. 1 retail brokerage, too. BoA will also become a giant in investment and business banking. (Los Angeles Times) Meanwhile, insurance giant AIG reportedly asked the Federal Reserve for a $40 billion bridge loan to stave off a credit-rating downgrade, and thus likely doom. The unprecedented request, if accepted, could prove a precedent for other struggling non-bank firms, such as GMAC. (The New York Times)

BEST COLUMNS OF THE DAY

What happened, and what's next?

So far, the mortgage-related credit crunch has been contained in the financial sector, says Fortune's Colin Barr in CNNMoney.com, while the broader market has remained fairly resilient. With the collapse of Lehman Brothers and the capitulation of Merrill Lynch, though "that resiliency seems likely to fade." The root of the problem is that Wall Street firms greedily expanded their balance sheets through leveraging assets, without taking proper precautions against losses. But don't forget, they "got fat during the housing bubble" by "trading debt tied to the massive expansion of consumer indebtedness in America." Sadly, they're not the only ones leveraged, and with the bill due, it's likely we'll all be "paying the price."

"There has, indeed, been an unprecedented collapse in finance and also in housing," says Anatole Kaletsky in The Times of London, but that doesn't mean the "chaos" will spread to the "real economy." The "never-ending" mess in the U.S. financial system has not prevented the U.S. economy from stabilizing and even expanding. That's because damage in the hyper-leveraged financial sector is largely confined to trades and bets with other financial firms. That's the "relatively good news." Unfortunately, the deleveraging of the financial system will have some wider fallout -- newly unemployed bankers could hit consumption, and tougher lending conditions might well take a greater toll on housing and other assets.

"Wall Street was supposed to be a place where everything had its price and where glory was for risk-takers," says David Weidner in MarketWatch, but it turns out that the big players are only willing to take risks if investors and taxpayers are on the hook when things go bad. The fall of Lehman and Merrill Lynch have a message, and it's not that "the market will grow healthier from this pruning," as you'll hear all week. Rather it's this: "You're on your own, suckers." It's not the first time we've had to learn this; the market panics of 1907, 1929, and 1987 had the same lesson. "Investors have always been the ones to take on risks. Wall Street firms just like to profit from them."

GOOD DAY FOR: Rainbow capitalism, after Hallmark started selling same-sex wedding cards. The decision by the top U.S. greeting card company followed California's legalization of gay marriage, opening up a potentially lucrative new market. Some 120,000 same-sex couples are expected to get married in California in the next three years. The cards work for civil unions, too. (AP in Los Angeles Times)

BAD DAY FOR: Stretching the dollar, as hotels are spending money to upgrade rooms to flat-screen TVs, but not to add HD service. With regular cable on wide-screen TVs, the image is stretched to fill the screen, distorting people and lowering image quality. "We get the most bang for our buck with in-room coffee, new shower heads, and flat-panel TVs," said Ritz-Carleton VP John Timmerman. (The New York Times)

NOTED: Video-game maker Electronic Arts dropped its $2 billion bid for smaller rival Take-Two Interactive yesterday, without explaining why. EA's original hostile offer had expired, but the two sides entered confidential discussions in August. Take-Two has sold more than 10 million copies of Grand Theft Auto IV since April. (The Wall Street Journal)

This column was written by Peter Weber and edited by Harold Maass of TheWeek.com.