When it comes to the financial markets, September was a startling and unsettling month that Americans may never forget. We have witnessed the collapse and/or government rescue of financial services giants that are household names. The financial fears of the public and the resulting stock and bond market volatility have prompted the Federal Reserve and the U.S. Treasury to resort to bailouts and backstops on a historic scale.

What does it all mean for the future of our financial system? While cringing at the potential expense, some experts seem to agree with government officials that intervention is most likely necessary, and that the costs of these measures outweigh the potential risk of doing nothing in the midst of a crisis of confidence.

Here’s a look at what may have prompted this situation, what has transpired recently in the financial sector, and how the government has acted to stem the negative effects of

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The G20 Summit was first proposed by the UK and France during the first waves of the global economic meltdown. It was long anticipated as a coming together of the major nations in the world to discuss necessary changes to help better regulate international finance, attempt to help stabilize the current turbulent markets, and discuss ways to have additional oversight on the international playing field.

After unprecedented global cooperation of bank bailouts and stimulus packages during the crisis, there was much debate about the outcome of the summit this past weekend. Unfortunately, world markets reflect a relatively negative viewpoint of the outcome– falling multiple percentage points in Europe (-2.4% UK, -3.35% Germany, -3.3% France), the Middle East (approx. -1.0% in Israel, Kenya, and Egypt, and 6% in Saudi Arabia), and mixed returns in Asia (+3/4% in Japan,

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The record drop in consumer spending in October is clear evidence of a profound weakening of the US economy.  Even President Bush think thinks the situation is bad. At the G20 summit over the weekend, he said it was conceivable that the US “could go into a depression greater than the Great Depression“.

- Of course a depression is what they used to call a recession. Then came the Great Depression. After that, economists and politicians stopped using the word for fear of jinxing the economy. Now, a depression means a severe and protracted recession.

- Bush may be right about the chances of the US slumping into a depression. Part of the problem is that it’s not only the US that’s suffering a bout of economic woes. Japan’s economy, the world’s second largest, has just officially entered its first recession since 2001.

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$5 trillion. That’s how much it has cost so far to bailout out corporate America from its own stupidity, greed and corruption (yes, Fannie and Freddie, that means you). Or to put it another way, the US government in its eternal wisdom has now put the American taxpayer on the hook for $5,000,000,000,000.

- Here’s the breakdown, from CreditSights, a research firm in New York and London, as reported in Forbes magazine.

The Fed

$1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window* $1.8 trillion in loans to primary dealers through the Fed’s term auction facility since in January* $29 billion in Bear Stearns debt $60 billion of credit available to American International Group $22.5 billion to set up a special purpose vehicle to manage some of AIG’s residential mortgage-backed securities $30 billion of a second fund to hold $70 ...

The biggest challenge for President elect Barack Obama is to stop Congress turning this recession into a depression, says Adam Lass. Reckless government spending and “crony capitalism” got us into this mess. And throwing endless credit at non-productive industries will only end up creating inflation and destroying the dollar.

This from The Rude Awakening:

The American people voted for change…and now they’re going to get it. But the change they get may not be the change they expect Obama to deliver. Something more sinister may be coming our way.

After an historic election and inauguration, president-elect Obama will enter office with a huge list of challenges. These challenges — from a contracting economy to large-scale corporate bankruptcies to soaring national indebtedness — will undoubtedly restrict his agenda.

Let’s hope Obama recognizes the need for incentives, profits, and capital investments in the economy. The economy cannot be taxed and regulated without potentially severe

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Barring a massive bounce in the coming weeks, this will be the worst year for stocks since 1937, says Bill Bonner. The greed driving the market has turned to fear. And not the kind of fear that President Bush created about terrorists to push through his agenda. This time we need to be afraid…

More from Bill in The Daily Reckoning:

Today, on the 11th day of the 11th month at precisely 11am London fell silent. We were asked to remember our war dead.

[...] As it turned out, the sky fell in 1914… and it kept coming down for the next 31 years. In last week’s recitation of all the calamities that befell the generation of ’14 – war, depression, influenza, bankruptcy, hyper-inflation – we left out one, the Dust Bowl. The poor Okies got it all.

What can we learn from this? That bad things happen – even

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Short-term aid, long-term assistance. According to the IHT, this sums up Barack Obama’s attitude toward the government’s role in the US auto industry. Obama is pushing President Bush to use some of the $700 billion bailout package to prop up GM (NYSE:GM).

- The wrangling between Bush and Obama comes in the wake of news that GM’s shares tumbled to 1946 prices, closing down 23% to $3.36, as analysts downgraded the stock on worries it would soon run out of cash and shareholders would be wiped out by any federal bailout.

- GM has 263,000 workers worldwide. If it does go under, that’s a hell of a lot of people joining dole queues.

- This, of course, would have disastrous consequences in the US, where unemployment rates are spiraling. If you take the U6 count of unemployed, which includes “marginally attached” workers and those who are

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“It was the best of times, it was the worst of times.” Justice Litle thinks Dickens’ classic line  provides an apt description of today’s markets. Sure, this year has been hell. But it has also created some amazing opportunities for contrarian investors. Justice says this is most apparent in the oil and natural gas market, where irrational risk aversion has made most people forget the fundamentals.

This from Taipan Daily:

Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking.

— Vice–President-Elect Joe Biden

Just a few weeks ago, Vice–President-elect Joe Biden (back when he was plain old Senator Joe Biden) promised the world that Barack Obama will be “tested” by America’s enemies.

“Remember I said it standing here,” Biden told his Seattle audience, “if you don’t remember

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From the New York Times editorial: President Bush spent years looking the other way while Mr. Putin harassed opponents, stifled a free press and bullied his neighbors. (A new report that suggests that Georgia had no reason to send troops into a breakaway enclave is disturbing, but not surprising, and still doesn’t justify Moscow’s brutal invasion.) While he was busy looking into Mr. Putin’s eyes, Mr. Bush also ignored Russia’s list of grievances — many of them illegitimate, but not all. Mr. Medvedev and Mr. Putin now seem determined to push their way to the top of Mr. Obama’s very crowded agenda. We suspect that they will get a more receptive hearing if they stop trying to bully their own people — and everyone else.

“All of the nations that have resorted to money-printing in the past, ultimately saw a total economic collapse,” says Puru Saxena. The government bailouts and stimulus packages may provide some short-term relief, but the long-term hyperinflation and damage to the dollar will be much, much worse.

This from The Daily Reckoning:

Let there be no mistake; the U.S. has now transformed itself into a great socialist society by using taxpayers’ money to buy-out private companies. In my view, this ridiculous measure is a slap in the face of capitalism and will further promote reckless and dubious practices. Essentially, by bailing out the behemoths (Fannie Mae, Freddie Mac and AIG [NYSE:AIG]) and allowing the smaller fish (Lehman Brothers) to fail, the U.S. establishment is sending out the following message:

“If you want government protection, please become too big to fail. If your demise threatens our entire financial system, we will

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