This big rescue may be just the beginning

That was the case in December 1994, when Orange County filed for bankruptcy protection after getting caught on the wrong side of a sharp jump in interest rates.

In September 1998, the Federal Reserve helped arrange a bailout of the giant investment fund Long-Term Capital Management after it neared collapse from bad bets in wildly swinging markets.

In those and similar instances the big-name debacles marked the peak of the financial system crises, not the start of something worse.

But this time around, with Friday's surprise announcement that the Fed would temporarily inject its own money into tottering brokerage giant Bear Stearns Cos., many Wall Street pros say they have little confidence that the move is a prelude to better times for beleaguered markets and the economy.

Indeed, some experts say Bear Stearns' woes warn of potentially larger calamities that will severely test the Fed, the economy and, ultimately, taxpayers as the government gets more deeply involved in fixing the markets' troubles.

"We will lose, in some form, several major financial institutions before this is over," said veteran economist Allen Sinai of Decision Economics Inc. in New York.

The heart of the problem is that the nation is living through an unwinding of a 25-year-long, consumer-led borrowing binge. Bear Stearns was a key player in financing that binge, most notably in high-risk mortgages.

Wall Street in recent years designed ever more creative ways to transform loans into bonds and sell them to investors who were hungry for interest income. That alchemy reached its zenith with sub-prime mortgages -- loans to people with dubious credit.

Even as investors poured hundreds of billions of dollars into sub-prime-mortgage bonds from 2003 to 2006, there were ample warnings that many borrowers were vastly overstretched.

But it wasn't until housing prices began to implode last year, and mortgage defaults rocketed, that banks, brokerages and investors came to realize they had gone too far.

Now, with the U.S. financial system already overburdened with debt, many investors simply don't want to take a chance on owning more of it -- unless it's the direct obligation of the U.S. Treasury.

In market parlance, debt is leverage.