U.S. awaits markets' verdict on bailout

This week, investors will deliver their verdict on whether this enormous intervention was enough -- or maybe too much.

The Bush administration and the Federal Reserve desperately need the markets to react positively in the next few days. If they don't, investors' loss of confidence could be catastrophic because of the sense that there are no more bullets left in Uncle Sam's gun.

And given our debtor-nation status, Americans' views of this debacle may matter less than what foreigners think. We still live, to a large degree, on their euros, yen and riyals. The mother of all credit crunches still is out there -- the one that would be sparked by the wholesale flight of foreign investors from our stocks, bonds and money market IOUs.

In the near term, one risk is that many market players will find it too difficult to sort out the ramifications of the government's multipronged effort and will simply withdraw.

The scale of the rescue program "is bewildering to a Wall Street professional and must be overwhelming for an ordinary investor," said David Kotok, head of investment firm Cumberland Advisors. "It is disconcerting and unfathomable on Main Street."

The Treasury is committing $700 billion of taxpayers' funds to buy up "troubled assets" from financial institutions. But which troubled assets -- and which institutions? How much of a markdown will the government demand on the assets, and how will that affect investors' perception of the garbage banks will keep on their balance sheets?

Wall Street has a telephone book's worth of questions about the debt-buyout program, and very few answers.

Investors' usual response to uncertainty is to cut the level of risk in their portfolios -- such as by selling stocks and hoarding cash. The U.S. is betting that its massive intervention program will do more to reduce uncertainty about the future than to increase it, but that remains to be seen.

Here's what to watch in the stock, credit and currency markets as the week opens:

* The stock market: Anticipating that the government would pull out all the stops to halt the credit crisis, the equity market staged a huge relief rally Thursday and another Friday. After crashing to a three-year low Wednesday despite the Federal Reserve's $85-billion rescue of insurance giant American International Group, the blue-chip Standard & Poor's 500 index surged 4.3% on Thursday and 4% on Friday to end the week at 1,255.08.