Nice bailout. Now what else you got?

September brought the biggest quake of all -- the equivalent of the San Andreas fault breaking, in slow motion: In the span of about three weeks, mortgage titans Fannie Mae and Freddie Mac were nationalized, brokerage Lehman Bros. sought bankruptcy protection, Merrill Lynch & Co. was forced into a takeover by Bank of America, American International Group (the largest U.S. insurer) required life support from the Fed, and Washington Mutual, the biggest savings and loan, failed.

If you would have predicted all of this a year ago, no one would have believed you. Or if they had believed you, the assumption probably would have been that the financial system would be crumbling before our eyes -- and with it, investors' willingness to take even relatively low risks with their money.

And that is where we are: Banks are afraid to lend to one another, even overnight, worried that they won't get their money back. Those that are lending are demanding rates far above normal.

States and cities have been shut out from normal financing in the municipal bond market because investors won't buy the securities. Money market mutual funds refuse to buy short-term corporate IOUs, preferring instead to hoard Treasury bills -- knowing that they can at least count on getting their principal back, because the government can always print more money.

The credit markets are frozen with fear. You can say it's irrational, but given the money that has been lost over the last 12 months by investors who were willing to take risks, it actually looks smarter to be irrational about this than to be rational.

The Bush administration's plan to blow up the ice floe in the credit markets is to borrow via short-term Treasury securities and use the cash to buy up to $700 billion in bad mortgage debt from banks and other financial institutions.

In theory, that will give those institutions the confidence to start lending again. But it's only a theory. It will take months to see if it works.

In the meantime, policymakers have to deal with the brutal reality of an economy that is sinking fast, in part because the lack of credit now is squeezing consumers and businesses alike.

The government on Friday reported that the economy lost a net 159,000 jobs in September, the most in five years.

That was one big reason why the stock market couldn't celebrate, despite getting what it wanted: A huge commitment by the government to throw more money at the crippled credit markets.

Even with the bailout plan, no one can be sure that September's mega-quake in the financial system won't be followed by something worse.

Given that uncertainty, the markets' response is to look for even more help from the only entity big enough to make a difference: Washington.

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tom.petruno@latimes.com