The Gray Lady Opines

Once, investors could get a read on financial firms’ assets and risks from their balance sheets; those days are history.

Firms now do much of their business off the balance sheet. The swashbuckling Bear Stearns was a party to $2.5 trillion — no typo — of a derivative instrument known as a credit default swap. Such swaps are off-the-books agreements with third parties to exchange sums of cash according to a motley assortment of other credit indicators. In truth, no outsider could understand what Bear (or Citi, or Lehman) was committed to. The thought that Bear’s counterparties (the firms on the other side of that $2.5 trillion) would call in their chits — and then cancel their trades with Lehman, perhaps with Merrill Lynch and so forth — sent Wall Street into panic mode. Had Bear collapsed, or so asserted a veteran employee, “it would have been the end: pandemonium and global meltdown.”
http://www.nytimes.com/2008/03/30/magazine/30wwln-lede-t.html?ref=todayspaper

And now Treasury wants to put the Fed, who gave us 17 straight meetings of 1/4 rate increases over two years, before cutting rates 3 points in 6 meetings in six months, sweeping power and latitude to run capitalism. You can read the proposals here.
http://www.nytimes.com/2008/03/29/business/29regulate-text.html?pagewanted=1&adxnnlx=1206815043-2aU9wm3wIKxhFtmW4DjOCA

Since there isn't confidence in financial institutions, they give the job to the institution that didn't see any of this coming, but only reacted when they realized that the banking system's problem wasn't just a liquidity issue, but a solvency issue. Which is why this was said in The Times:

“The Fed oversaw this meltdown,” said Michael Greenberger, a law professor at the University of Maryland who was a senior official of the Commodity Futures Trading Commission during the Clinton administration. “This is the equivalent of the builders of the Maginot line giving lessons on defense.”

And in this market, perceptions can trump reality. With all this government intervention, you better take some short exposure off.