The U.S. government yesterday (Tuesday) announced plans to invest $250 billion, more than a third of the $700 billion congressional bailout allotment, into nine of America’s largest banks in an effort to bolster confidence in the financial system. Similar to steps taken by European governments earlier this week, the government will guarantee new debt and take equity stakes in the participating banks.

The U.S. government yesterday (Tuesday) announced plans to invest $250 billion, more than a third of the $700 billion congressional bailout allotment, into nine of America’s largest banks in an effort to bolster confidence in the financial system. Similar to steps taken by European governments earlier this week, the government will guarantee new debt and take equity stakes in the participating banks.

The U.S. government yesterday (Tuesday) announced plans to invest $250 billion, more than a third of the $700 billion congressional bailout allotment, into nine of America’s largest banks in an effort to bolster confidence in the financial system. Similar to steps taken by European governments earlier this week, the government will guarantee new debt and take equity stakes in the participating banks. "Government owning a stake in any private U.S. company is objectionable to most Americans - me included," U.S. Treasury Secretary Henry Paulson said announcing his decision to effectively nationalize the nation’s banking sector. “Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable.” A government investment of $250 billion amounts to about 25% to 30% of the market capitalization for publicly traded banks, Rajiv Sobti, chief investment officer at Nomura Global Alpha, ...

Governments across Europe yesterday (Monday) took the first step in a new, coordinated effort to subvert the widening credit crisis and restore functionality to the markets by guaranteeing new debt and using taxpayer money to bail out troubled lenders all over the continent. The sweeping actions followed a pact reached Sunday by members of the European Union, most notably the United Kingdom, Germany, and France. “The steps taken in Europe are very positive,” billionaire investor George Soros told Bloomberg News. “The European governments have got religion and realized this is a serious problem they have to address.” The British government, which last week unveiled its own $87 billion bailout plan, spent $64 billion (37 billion pounds) for controlling stakes in three U.K. banks: The Royal Bank of Scotland Group PLC (RBS), HBOS PLC (OTC: HBOOY), and Lloyds TSB Group ...

The U.K. government yesterday (Wednesday) announced its own banking bailout package with an $87 billion (50 billion pound) recapitalization plan for the ailing British financial sector. “The global market has ceased to function,” British Prime Minister Gordon Brown said yesterday at a press conference in London. “The banking system must be sounder, and that is why we are putting the capital in.” Under the plan, the U.K. Treasury will provide $43.5 billion (25 billion pounds) to recapitalize banks and boost their Tier 1 capital ratio. A bank’s Tier 1 capital ratio is a key indicator of the firm’s financial strength. An additional $43.5 billion (25 billion pounds) will be available if needed. In addition, the Bank of England, the nation’s central bank, will increase the amount of funds available for short-term lending to $346 billion (200 billion pounds). The plan ...

Despite a $700 billion bailout plan and huge injections of liquidity, money markets are frozen. Today, the London Interbank Offered Rate (LIBOR), which measures the cost of lending between banks, hit new record highs for all currencies.

Money Morning's Keith Fitz-Gerald says this shows the worst is still to come in this credit crisis.

Keith has three recommendations for investors: 1) Hold T-bills; 2) Look for inverse investments; and 3) Include hard assets and inflationary hedges in your portfolio.

More than a year ago, even before the subprime-mortgage crisis had revved itself up into the full-fledged credit crisis that’s now threatening global growth, we pointed to the London Interbank Offered Rate (LIBOR) and other interbank rates that suggested that the worst was yet to come. The Money Morning team has continued to watch this important risk indicator, and has regularly reported our findings to you. Each time, we’ve preached caution, even though the pundits were telling the masses that the bailout plan was a panacea for what’s actually a financial mess whose fallout continues to spread. So what is LIBOR telling us now? Unfortunately, the worst is still yet to come. That’s it. No sugar coating. No rose-colored glasses. Yesterday (Monday), the spread between Overnight Indexed Swaps (OIS) and the three-month LIBOR rose to an all time high of 2.94%. ...

The European Central Bank (ECB) yesterday (Thursday) held its key interest rate steady at 4.25%, but ECB President Jean-Claude Trichet struck a much less hawkish tone in announcing the decision and may be forced to cut rates before year-end to revive the Eurozone’s shrinking economy.

By William Patalon III Executive Editor Money Morning/The Money Map Report As rocky as the global markets have been, the worst is yet to come, the Royal Bank of Scotland Group PLC (ADR: RBS) warns. RBS analysts have warned clients to brace for a full-blown crash in the global stock-and-bond markets over the next three months as the conflicting realities of slowing growth and rising inflation paralyze the world’s major central banks - causing “all the chickens [to] come home to roost,” Great Britain’s Daily Telegraph newspaper reported. The report, which first surfaced late Wednesday, raced across the Internet yesterday (Thursday), though it appears that European news organizations are giving it much wider play than their U.S. counterparts. The predicted swoon would cause the U.S. Standard & Poor’s 500 Index - already down 15% from its trading high of 1,576.09 reached ...