• This is a rush transcript from "The Journal Editorial Report," September 20, 2008. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: Coming up next on the "Journal Editorial Report," Wall Street in crisis. Investors panic as the financial giants continue to fall. We will tell you what is happening, why it is happening and what we might see next.

    Plus, with Federal Reserve bailouts of failing to stop the meltdown, the Bush administration asked Congress for new power and taxpayer cash. Will it work?

    And the presidential candidates play the blame game, chalking it up to Wall Street agreed.

    The "Journal Editorial Report," begins right now.

    Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    Wall Street plunged deeper into crisis this week as anxiety about the stability of the financial system sent stocks on a roller coaster ride.

    The week began with Merrill Lynch, the world's largest brokerage, selling itself to Bank of America on Sunday in a last-ditch effort to avoid failure. That was followed by Monday's news, that the investment bank Lehman Brothers had filed for bankruptcy. And on Tuesday, the U.S. government extended an $85 billion lifeline to crippled insurance giant AIG, in the hopes of avoiding a broader financial collapse. Then late Thursday, the Bush administration asked Congress for new money and new power to buy ailing securities from financial companies, as much as $500 billion.

    Here to tell us what is happening, why it is happening and what we might see next, Wall Street Journal columnist Mary Anastasia O'Grady; the assistant editorial editor, James Freeman; Washington columnist Kim Strassel; and senior economics writer Steve Moore.

    Mary, what we saw this week, a classic old-fashioned financial panic, a kind of giant global selling mania. Why are people so afraid?

    MARY ANASTASIA O'GRADY, COLUMNIST: The immediate fear is markets are going to seize up, people will stop trading. But what is underlying that is the different trading partners, the big investment banks, have a lot of debt that is highly leveraged, which means that they put down very little when they purchased the assets. When the price goes down, that goes against them. It becomes bad debt. It becomes...

    GIGOT: Also the fear that these banks don't have enough capital to sustain losses if they had to dump all this debt on the market. Then you get a kind of systemic, as they say, risk to the entire financial system.

    O'GRADY: Exactly. And because Lehman Brothers went bankrupt, that's a perfect example of an institution that now is affecting other institutions in the system, because I trade with you and you trade with James. And once one party starts to fail, then there is a fear in the system that that will ripple through and affect all the others.

    GIGOT: This is rooted, James, in the housing slump, because these securities are all underpinned by home prices, by real estate assets. And we don't know how low those home prices will go. So nobody is quite sure what the value of the securities are. And that helps the seizing up.

    JAMES FREEMAN, ASSISTANT EDITORIAL EDITOR: That's right. What you have are these investment firms holding a lot of assets that were deemed safe by government-appointed risk experts — we called them credit rating agencies.

    GIGOT: Standard & Poor's, Moody's.

    FREEMAN: That's right. They put the big stamp of approval on these things. They've been sitting in all these investment banks' accounts, safe securities. We now find out they have liar loans behind them. There are mortgages that probably are not going to pay in many cases. And they are risky investments.

    That's really at the root of this whole thing. That's why it is absurd for the government to point fingers at Wall Street. At the root of this you have a misunderstanding of risk driven by government-approved credit raters.

    GIGOT: Steve Moore, you have the AIG bail out, a huge insurance company. It is a good insurance business. Nobody thinks the insurance business is bad. Yet, the government has to step in and basically hold up the taxpayers for $85 billion in loans. Why?

    STEVE MOORE, SENIOR ECONIMICS WRITER: First of all, Paul, I feel I need a raise because I lost all my money this week. This has been one of the worst weeks financially for Americans all over the country.