Mick Weinstein The Week's Best Stock Blogs

Now, the fear is palpable. With the government bailout of mortgage behemoths Fannie Mae and Freddie Mac, followed by Lehman Brothers' seeming death spiral and even more banks in trouble this week (et tu, WaMu? Merrill??), everyone's wondering just when the bleeding will stop. For market bloggers, key questions at the moment pertain to the limits of government bailouts and the fate of Lehman:

• Investment advisor Michael Shedlock takes Fannie and Freddie management to task for squandering "every penny of capital they had. One might have thought that insolvency would have been reason enough to start taking less lending risks instead of continuing on the same foolish path... But no! Fresh with a $100 billion taxpayer bailout, the very first thing out of [Fannie Mae CEO] Tom Lund's mouth is to inform everyone that nothing has changed, and it's business as usual. ‘Business as usual' is exactly why we are in this mess in the first place."

• Market veteran David Merkel wonders "just how much can the U.S. government guarantee?... Who doesn't want to be guaranteed by the government? The auto companies are in line, can I get in line too? I could do amazing things with a $50 billion credit line from the government."

• Indeed, is there reason to believe non-financials like GM and American Airlines will be bailed out as well? Paul Kedrosky has a helpful metaphor to explain why that's not necessarily the case.

• Were Fannie and Freddie "just too big," as VP candidate Palin stated? Well, that wasn't necessarily the problem; Felix Salmon says "the marginalization of Fannie and Freddie during the housing boom would probably, on net, have been a bad thing. Insofar as anybody was sticking up for old-fashioned underwriting standards, it was the GSEs, and I suspect that if they hadn't been around, prime underwriting would have suffered the same race to the bottom as subprime." Salmon supported Sunday's GSE bailout under the circumstances: "Let's just do this thing, people, and get the companies run by technocrats in the public service rather than CEOs beholden to a small group of shareholders."

• Economist Mark Thoma sees in the bailout the ceding of policy independence by U.S. authorities. It means that the U.S. joins a "list of nations that have had to go, hat in hands, to their creditors - Indonesia, South Korea, Thailand, Russia, Brazil, etc. Do the implications resonate in Washington, D.C.?" Thoma wants to be sure that government policy "cushions the downside" of this new state of affairs, "easing the structural transition to an economy not dependent upon foreign official financing..."

• Michelle Leder takes a close look at the huge severance packages the departing Fannie and Freddie CEOs will receive. "[T]he figures being talked about for Mudd and Syron are $9.3 million and $14.1 million respectively. But given the over-complicated nature of both executives' employment contracts... the numbers seem a bit more open to interpretation."

Lehman on the Brink

An eavesdropping WSJ reporter caught a Lehman Brothers employee Thursday afternoon chatting on his cell outside the office: "It's over, man... unless we get bought out in the next 24 hours, it's over." So it seems - reports overnight indicate that the Fed and Treasury are at work trying to broker a Bear Stearns-style fire sale of Lehman.

• Lehman is "a sad tale, a classic story of hubris and greed," says Wall Street veteran Roger Ehrenberg. With Washington's move to sell Lehman, "we're going in the right direction, but we still seem to be a ways away from the time when the Fed and the Treasury will do what is right and fair in the marketplace: LET THEM FAIL."

• David Reilly at WSJ.com's Heard on the Street: "If the Federal Reserve now backstops an emergency sale of Lehman, this will only reinforce the idea that the cavalry will always ride to creditors' rescue in supposedly too-important-to-fail firms. That would especially be the case if a bailout were organized so soon after the Treasury rescued creditors of Fannie Mae and Freddie Mac... To avoid reckless lending in the future, failure has to be an option."

• Yves Smith at Naked Capitalism thinks "we may have a bit of brinksmanship going. It appeared during the Bear Stearns negotiations that Jamie Dimon played his position as the only game in town to considerable advantage. The Fed and Treasury would be advised not to make themselves again to be hostage to one bidder, but that may be unavoidable."

• London-based hedge fund trader Macro Man laments: "Another day, another US government intervention... it's a damned shame that LEH has gone to the wall, but being a damned shame isn't necessarily a good criterion for government intervention. Readers across the world can no doubt think of domestic issues that are a damned shame but have yet have yielded no government response."

• Investment advisor Dave Fry: "If the government backstops potential losses through a deal to save Lehman Brothers, it shouldn't shock anyone. It will lead to a knee jerk rally and then we'll have reality to deal with once again, as an ongoing credit squeeze continues to keep home prices falling. That's because no one can qualify to buy a home - even from the few willing to lend."

• Martin Hutchinson tries to answer the key question: "Just where were all the risk-management experts who should have assessed the pitfalls these companies faced, and how could they have missed the massive risks that are now threatening to take this entire sector down?"

And finally, before you consider buying the beaten-down stock of Fannie, Freddie, Lehman or any other financial firm that's recently been decimated, take heed of the lesson from legendary investor Bill Miller, as conveyed by New York Times blogger Joe Nocera. Oh, how the mighty have fallen.