THE FINANCIAL COLLAPSE WILL BE BLOGGED.

Literally, they're live-blogging it over at the Times.

But what does the fall of the House of Lehman mean? Hopefully, as Ezra writes, market-wide intervention and regulation focused on protecting the base of the financial pyramid (consumers) and not the point (executives, big shareholders). With the decision not to have the government bail out the investment banking giant, we will also see a return to the assumption of risk by these institutions as they realize they cannot rely on the government for aid when their bad investments fail. This kind of shock therapy is necessary but brings with it risk of problems spreading across the economy.

Overseas, China is tacking sharply on monetary policy -- cutting interest rates as it apparently feels its economy is slowing. That suggests we'll see an international economic slow-down, not just problems in the United States.

Back at home, note each presidential candidate's response to the crisis in the market. John McCain has been a proponent of deregulation, the exact policy choice that negatively influences situations like this one (recall what happened with Charles Keating and the collapse of the Savings and Loan industry after it was deregulated). Now he, too, is promising some kind of new regulation.

Barack Obama is also promising increasing regulation of the markets, but that promise is more believable coming from his campaign. His supporters and advisers are ideologically predisposed to advocate for such intervention (as opposed to McCain's conservative advisers who in general virulently oppose new regulation). The other fact, as sad as it is to admit, is that increasing economic uncertainty is probably to the benefit of the Obama campaign because political forecasting models generally indicate that economic crisis is to the benefit of the candidate unconnected with the incumbent party.

--Tim Fernholz