The Financial Crisis

This credit quake looks to be the severest threat to the economy in decades, and its tremors are being felt from Wall Street to the Great Wall
Scenes of the New York City Financial District, 3/18/08 Christopher Anderson / Magnum

As recently as 2002, Ben Bernanke was just another smart professor explaining supply and demand curves to college kids. Now he's chairman of the Federal Reserve in a moment of crisis. As Bernanke reinvents the central bank to cope with unprecedented challenges, he has become one of the most important people in the world.

In this special report, we explain what changed Bernanke from a cautious technocrat into a reluctant revolutionary. The short answer: Desperate times call for desperate measures. Our lead story explains what makes the credit crunch so dangerous, what the Fed is doing about it, and what the unavoidable side effects will be.

The stock market rallied powerfully in the two days after the Fed-brokered agreement by JPMorgan Chase (JPM) to take over Bear Stearns (BSC), the wounded brokerage firm, on Mar. 16. But then it sagged. The second story in our package warns that the financial sector's troubles aren't over. For one thing, there are no other obvious rescuers if another big firm suddenly lurches toward bankruptcy.

Some parts of Corporate America remain in decent health. Our third story fingers tech, energy, agriculture, and health care as among the strongest sectors. See our fourth story for an analysis of how the overall economy's sudden downturn has become a major issue in the Presidential campaign. That could play well for Senator Hillary Clinton, who has staked the strongest claim to "lunch-bucket" issues. We explain why the problems in the credit markets were allowed to get so bad in the first place. And we look at how Europe is coping with the drop in the dollar, which makes European goods more expensive in the U.S.

A note to investors: Look to our Personal Business section for a survey of "once-in-a-blue-moon bargains" and advice on what to do if your broker goes belly-up.

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