Even with a congressional compromise having been reached, the $700 billion credit-crisis bailout plan will remain the headline story this week as analysts monitor whether the deal is viewed as a good one, or is ultimately regarded as a flawed deal that can only do damage to the U.S. economy over the long haul.

Indeed, those analysts will watch to see how the stock-and-bond markets open this morning (Monday) as investors “vote” on whether the deal is a good one or not. A lot will depend upon what the so-called “experts” have to say about the long-term prospects of any deal (or non-deal) - and what strategies those experts tell investors to adopt:

Should they avoid “risky” equities at all costs and look to the “safe-haven” of commodities? And can you label the commodities sector as “safe” during a market in which oil can shoot up $25 a barrel in a single day? And what about money markets, which most investors view as the safest of investment plays: Are more money-market funds close to “breaking the buck,” a trend that threatens the most conservative of investors?

Congress seems more concerned about affixing blame than fixing the problem, so it’s little wonder that while there was a lot of finger pointing, few of our elected officials were analyzing their own roles in - and responsibilities for - this mess. There were no admissions of that one of the root causes was the lack of legislative oversight. Surely, the next Congress will seek to prevent similar calamities in the future and will rush to enact new (though not necessarily better) laws and regulations.

While everyone already realizes the economy is sluggish, this week will bring further confirmation through reports on labor (unemployment rate, non-farm payroll), manufacturing (ISM index, factory orders), and the U.S. consumer (income/spending, confidence). Some positive surprises sure would be nice.

Market Matters

Ah, the theater of politics…let the grandstanding begin. Apparently, when a U.S. treasury secretary, Federal Reserve chairman or even a president speaks, House Republicans (and a presidential candidate) don’t listen (especially in an election year). Throughout the week, Congress grilled the powers-that-be about the specifics of the $700 billion government bailout plan; at one point, they appeared to have reached an agreement by adding provisions on executive compensation and equity interest in those participating firms. But before the “I’s” were dotted and “T’s” crossed, disgruntled House of Representative members offered their own “insurance-based” plan (that, of course, included tax breaks), which U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. and many banking experts called “unworkable.” U.S. Sen. John McCain, R-Ariz., (apparently now a renowned economist) appeared to have sided with this vocal minority, ceased campaigning, and even tried to reschedule the first presidential debate to focus on these matters (and to further pander to certain constituencies), while Sen. Barack Obama, D-Ill., preached “change”).

Meanwhile, U.S. Federal Reserve Chairman Ben S. Bernanke warned that inaction could lead to “recession, higher unemployment, and increased foreclosures.” Even global investing icon Warren Buffett, whose Berkshire Hathaway Corp. (BRK.A, BRK.B) just made a confidence-building, $5 billion investment in Goldman Sachs Group Inc. (GS), urged Congress to act now and said “he could understand the anger… but action was needed.”

While most people would agree that the bailout is far from an optimal solution, inaction could lead to the worst economic times since the Great Depression. Despite the politicizing, some form of a deal most likely will be passed (and just in time for Congress to hit the campaign trail). But it will take years to evaluate the plan’s effectiveness.

While much of the country focused on the bailout, the negative ramifications of the financial meltdown continued. Washington Mutual Inc. (WM) was taken over by the Federal Deposit Insurance Corp. (FDIC) and became the largest bank failure in history. WaMu’s assets were promptly sold to JP Morgan Chase & Co. (JPM), which jumped into first place in terms of domestic banking deposits.

Meanwhile, Goldman Sachs and Morgan Stanley (MS) moved beyond the old investment-banking model to become bank holding companies with the hope that their newfound abilities to accept deposits will improve both their liquidity and their overall operations (even with the increased regulatory oversight). Morgan Stanley also bolstered its balance sheet by selling a 20% interest to Japan’s Mitsubishi UFJ Financial Group Inc. (ADR: MTU), while its country counterpart, Nomura Holdings Inc. (ADR: NMR), bought the Asian operations of Lehman Brothers Holdings Inc.’s (OTC: LEHMQ) for $225 million.

General Electric Co. (GE) reduced its earnings expectations, ended its stock repurchase program, and hold its dividend steady through 2009, thus becoming another victim of the financial crisis. This will be the first time in 32 years that it won’t boost its dividend.

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