The big story of the day was the massive sell-off in global equity markets on fears that the credit crisis will spark a global recession, or possibly even a depression, according to some economists. At its session low, Canada's TSX Composite Index was down by 1,180, or 11.0%, to 9617, but eventually pared its losses and closed down 467 points. The Dow Jones plunged more than 800 points before also staging a small rally at the end of the day to close down 340 points. The Brazilian stock index, the Bovespa, closed the day down 5.56% after falling as much as 15% earlier in the day.

"The logic is worries of a global recession. The extent of the carnage is unreasonable," said Carlos Leitao, chief strategist and economist at Laurentian Bank.

Speaking in Texas today, Dallas Fed President Richard Fisher said markets are in a "semi-panic" mode right now and that that the Federal Reserve is "doing everything it can" to help the markets. In a question and answer session following his speech, Fisher said he is very concerned about the dysfunction in the system, but that he is not as worried about inflation as he was before.

Speaking to reporters in San Antonio, Texas, U.S. President George W. Bush said it will take time before liquidity under the financial rescue package could be liberated into the marketplace and restore confidence in the financial system.

Speaking at a conference organized by the National Association of Business Economics on Monday, Federal Deposit Insurance Corporation Chair Sheila Bair the U.S. economy is facing a period of "great financial stress" and that additional regulation is absolutely necessary. The head of the FDIC stressed that protecting the consumer has to be done in a simple, understandable and transparent fashion.

Delivering remarks at the Association for Manufacturing Technology in Lost Pines, Texas, Chicago Fed President Charles Evans said core inflation at 2.6% is too high, and that the outlook for the U.S. economy looks risky. Evans said he expects the U.S. economy's growth to remain sluggish well into 2009, and that the timing of a recovery is very uncertain.

According to sources cited by the Washington Post and the Wall Street Journal, Neel Kashkari, former vice-president at Goldman Sachs and current assistant secretary of international affairs at the U.S. Treasury, is expected to become the interim head of the $700 billion rescue package. The sources say the 35-year old Kashkari would direct the program until a more permanent head is chosen. His replacement would likely continue running the program once the next president takes office in the new year, the sources said.

Earlier in the day, the Federal Reserve announced that it will be increasing the size of term facility auctions and that it will begin paying interest on required and excess bank reserves in a bid to re-establish credit markets and buoy the economy. "Paying interest on required reserve balances should essentially eliminate the opportunity cost of holding required reserves, promoting efficiency in the banking sector," the Fed said.

Speaking later in an interview with CNBC, U.S. Under Secretary for Domestic Finance Anthony Ryan said progress is being made on structuring the facilities geared at allowing the Treasury to acquire illiquid assets from financial institutions.

Former Federal Reserve Chairman Paul Volcker said the U.S. Treasury and the Fed are taking appropriate measures to ward off great pressures in the financial system. He also said the crisis is an "apt illustration of the need for reform." He added that the Treasury's response to the crisis has been "appropriate given the risks."

In Canada, Finance Minister Jim Flaherty says the federal government will "take whatever actions may be necessary" to protect the stability of the Canadian financial sector, which he said is not immune to the global credit crisis. Flaherty added that he welcomes initiatives from European countries and the U.S. government's passage of the financial market rescue legislation on Friday.

The only scheduled data release was the Ivey Purchasing Managers Index for September, which surprised to the upside, coming in at a reading of 61 against forecasts for a decline to 51. The Ivey Employment Index for September fell to 49.2 from its August reading of 53.0, and inventories slid to 50.8 from the previous month's 55.6. Supplier deliveries were 44.6, a decline from August's 55.6, and prices climbed to 74.6 from 72.7 in August.

Speaking at the Peterson Institute for International Economics in Washington D.C. on Monday, World Bank President Robert Zoellick said the G7 is "not working" and called for a new multilateral network for the new global economy. "The G7 is not working," and "the G-20, though valuable, is too unwieldy in moving from decision to action," Zoellick said. "We need a core group of Finance Ministers who will assume responsibility for anticipating issues, sharing information and insights, exploring mutual interests, mobilizing efforts to solve problems, and at least managing differences."

Citigroup announced that it launched a lawsuit against Wachovia and Wells Fargo for $60 billion, claiming they interfered with the bank's planned takeover of Wachovia. By the end of the day, however, the three companies, in consultation with the Federal Reserve, agreed to a standstill of litigation activities.

Overseas, the German government issued a guarantee on every private deposit account as part of its plan to avert a disastrous outcome from the banking crisis. Speaking to reporters on Sunday, finance ministry spokesperson Torsten Albig said "the state guarantees private deposits in Germany." A new bailout agreement was also reached to save German lender Hypo Real Estate (HRE). The German government, along with a consortium of banks, has came to a €50 billion deal after an earlier plan was aborted.

According to a recent announcement by Belgium Prime Minister Yves Leterme and a report today from Belgian newspaper De Tijd, an agreement has been made for French banking group BNP Paribas to buy the remaining assets of financial group Fortis.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , Geoff Matthews, gmatthews@economicnews, Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, twailoo@economicnews, edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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