From Belmont Club…

If the events have gone nonlinear, then Barack Obama and John McCain may ironically be struggling for the privilege of sitting in the cockpit of an airplane which has become aerodynamically unstable. In such a situation, second prize is getting the White House. Barack Obama will be to politics what the bailout package has been so far to financial markets. There’s an old joke about dogs who chase cars and can’t figure out what to do when they catch them. Now Presidents and Central Bankers all the world over know how it feels to reach the perches they always dreamed of and finding themselves spectators just the same.

From Felix Salmon….

Here’s how fluid things are: last week, Iceland nationalized Glitnir, the country’s third-largest bank. Today, it unnationalized Glitnir, putting it into receivership instead: clearly the bank’s liabilities were too large for the Icelandic government to take on.

Yesterday, Iceland pegged its currency to the euro; today it unpegged the currency, saying “there is insufficient support for this exchange rate”.

This is turning into an international incident. A lot of people in the U.K have money in banks based out of Iceland. Its looking like they won’t get their money back.

From Blomberg…

“America’s homeowners are going to get uncomfortably familiar with ‘LIBOR’ starting next month,” the New York-based Citigroup analysts wrote.

Libor rates have soared since the bankruptcy of Lehman Brothers Holdings Inc. last month as financial companies hoard cash.

The average subprime borrower facing an adjustable payment for the first time next month would face a monthly payment increase of about 18 percent based on Libor rates as of Sept. 30, rather than the 10 percent that would have occurred based on the rates on Sept. 15, the analysts wrote. The payment would be $1,951, instead of $1,807, they said. Fannie Mae and Freddie Mac loans would be boosted to $1,021 on average, instead of $904.

(h/t Felix Salmon)

Macro Man has a post up today where he blogs his reaction to the markets in real time. Read it and keep checking back if you want to be able to say that you where there when the world changed. I don’t know how long he will be able to keep it going though. He is on London Time so he will need to go to bed earlier the those of us in the US. Then again, he might not be able to sleep tonight.

Edit: Check on the comments on Macro Man’s post if you have time. I feel sorry for those who thought a rate cut meant a bounce.

From the AP….

The misery worsened on Wall Street Tuesday, with stocks piling on losses late in the session and bringing the two-day decline in the Dow Jones industrials to more than 875 points amid escalating worries about credit markets and the financial sector.

The Dow lost more than 500 points and all the major indexes slid more than 5 percent. The Standard & Poor’s 500 index saw its first close below 1,000 in five years.

Steps by the Federal Reserve to reinvigorate the dormant credit markets ultimately weren’t enough to calm nervous investors. News about financial companies only added to their despondent mood.

“The calls I’m getting — every money manager I deal with, and every client I talk to — are just very emotional. This is a very, very emotional time, and most of them are taking steps to shore up their defenses, reducing exposure to stocks just to defend their portfolios,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.

In other news, the Fed will now loan money to commercial enterprises directly.

Iceland is begging Russia for for a loan because no one else will give them one.

And Spain is begging people to turn in all their cash money. This has a risk of backfiring. Around these parts if the the Government started begging people to turn their money in people might start to pull their money out just to be on the safe side.