seth wenig / the associated press

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Sean Grossberg closed the textbook for his financial derivatives class and sank into the couch. If all went according to plan, a year from now he'd be finished with school and working on Wall Street. But now he needed a break.

The University of Wisconsin senior hit the remote control and the second half of a Sunday afternoon football game filled the 100-inch screen.

Then his cell phone signaled a text message from a fellow finance major. The mess they'd been watching in the financial markets "has hit the fan," wrote his friend.

It was 6:29 p.m. Grossberg flipped open his laptop and pored over the news: Without the government to prop it up, one of Wall Street's most storied investment banks — Merrill Lynch — was surrendering. Another — Lehman Brothers — was hours from collapse.

Later that night, a crowd blocked most of a sidewalk 900 miles away, outside a glass tower at Seventh Avenue and 49th Street in midtown Manhattan. Tourists in shorts and T-shirts jostled at police barricades, snapping pictures with their cell phones.

Employees of one of the nation's oldest and most prestigious financial firms lugged cardboard boxes stuffed with their belongings to the curb.

Outside the Wall Street bubble, most people sidestep the usual thin stream of business headlines when a weekend is under way. For a day or two, we can do without the reminders that the economy is struggling. We feel it at the gas pump or the grocery store, see it in the paycheck, hear it in a friend's lament about a lost job. That's enough.

Besides, what are we supposed to make of all these reports about arcane securities backed by subprime mortgages. That's just a Wall Street problem, right?

Little did we know.

Monday morning, as people unfolded newspapers and logged on to computers, a daunting new reality would become clear.

The fortresses of wealth and power where we invest our futures were swaying wildly.

The financial assumptions and assurances of yesterday had, seemingly within hours, turned queasily shaky.

It was already clear this would be no ordinary Monday.

And the stock market hadn't even opened yet.

At 8 a.m., dozens of Wall Street analysts dialed in to a conference call to hear the captains of Merrill Lynch and Bank of America lay out the terms of their deal.

"As you all know," BofA Chief Executive Ken Lewis told them, "the financial system is operating under almost unprecedented stress."

A few words later, the connection was cut off.

But the message was spreading, nonetheless:

● The sky was still dark when Dan Fagan, a financial adviser, began the 40-minute drive down the Wilbur Cross Parkway to his office at TIAA-CREF in New Haven, Conn. The overnight news about Merrill Lynch and Lehman Brothers — which had finally announced its bankruptcy filing in a 1 a.m. press release — poured from the radio.

By the time Fagan walked into the office he had 10 voicemail messages and 20 e-mails waiting from worried investors.

● In St. Louis, Paul Spector turned on "Today," and grimaced at the news from Wall Street. "Here we go again," he thought.

He and his wife, Anna, owned Mezzanine, a women's clothing store. Over the last two months, the number of shoppers had dropped sharply. Between them, the couple was staffing every shift, replacing five part-time employees they'd let go.

Now they had to wonder: Do we gird ourselves for a downturn? Or do we gamble on the future?

● In Sioux Falls, S.D., home builder Kyle Eberts pondered the news while he put in his paces on the treadmill. Eberts, a former stockbroker, had never forgotten about market psychology.

"I hope people don't panic," he told himself. If they did, what might that mean for sales of the $350,000 homes he was building? For now, the only thing to do was watch and wait.

When stock markets opened 90 minutes later, the Dow Jones Industrial average immediately fell by more than 200 points. By the time it closed, the market would drop 504 points, the biggest one-day point loss since the aftermath of Sept. 11, 2001.

Not everyone was a loser. Sitting in his room at Otterbein College in central Ohio, 19-year-old George Schubert stared at his computer screen. He'd scheduled his classes so he had plenty of time to watch the stock market. And in August, he'd put his amateur investing skills to work by placing a short position on American International Group — a bet that the stock of the world's largest insurance company would fall.

Now, like Lehman and Merrill, AIG — which insured the dubious investments that were pulling the big banks down — was also under attack. By day's end, its shares were down 61 percent. Schubert could barely contain his excitement.

He would cash in his AIG bet a day later, making a healthy (but undisclosed) profit as AIG fell from $70 last October to $3.

By Tuesday afternoon, it was clear to Rabbi Doug Sagal that, at least in his corner of the world, he needed to address the fallout from the financial world.

His congregation, Temple Emanu-El in Westfield, N.J., is filled with Wall Streeters. He sat down with his staff to plan a spiritual response. The result would be an e-mail to the entire congregation: Please, if you need someone to talk to, we're here.

"When I first became a rabbi, I served in a small town in Connecticut that was hit very hard by the closing of factories, homes being sold. Here I am, 20 years later, in a maybe more affluent community than I started in, with the same issues," Sagal said.

A similar meeting convened at St. Bartholomew's, the Episcopalian church in the heart of Wall Street. The staff crafted a special note for the upcoming bulletin.

"Trust and security used to be bywords in banks — along with those steel safes the size of chapels," it says. "Events in the markets this week, in our city particularly, have shattered a good deal of what was left of trust and security. Where, after all the changes and chances of this life, do you find security? What, or whom do you trust?"

At 6 p.m., on Capitol Hill, the nation's two most powerful financial officials — Treasury Secretary Henry Paulson and Ben Bernanke, the Federal Reserve chairman — called congressional leaders into a meeting. There is no choice, they said: The government must step in and take over AIG to keep the crisis from worsening. The meeting broke up a little less than an hour later and rumors of the plan sent the Dow up 142 points for the day.

But now there was something new to worry about.

In New York, The Reserve Fund — operator of a huge money market fund — announced it would be forced to do something unseen in more than a decade. Investors put their money in money markets specifically because they are so safe. You may not make much money, but you will not lose anything, or so goes conventional wisdom.

Reserve's Primary Fund, though, had so much invested in Lehman Brothers debt securities that every $1 share would now be worth just 97 cents.

By Wednesday morning, the $85 billion bailout of AIG was all over front pages. But the news hardly calmed the market. It dropped almost 200 points to open and continued to lose ground.

On a Manhattan street corner, in the shadow of Macy's, a worker for the United Homeless Organization called out to pedestrians, trying to coax them into dropping money into the nearly empty plastic jug atop his card table.

"Billions for AIG!" he barks. "Come on. How about a dollar for the homeless?"

As the market tanked, it seemed to suck down all ships.

John Mack, chairman and CEO of beleaguered investment bank Morgan Stanley, tried to calm his capitalist army. "I know all of you are watching our stock price today, and so am I," he wrote, in a late-morning e-mail to all his employees. "What's happening out there? It's very clear to me — we're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down."

But Dan Fagan, the New Haven investment adviser, was on the front lines, and he knew that explanations and soothing words went just so far in the face of a growing panic. His phone rang and rang; these were wealthy folks, many of them quite savvy, but they were clearly rattled.

Across the country, Rich Kerr, manager of the Charles Schwab Inc. branch office in the Phoenix suburb of Chandler, was similarly under siege.

Most investors just wanted to talk. But at lunchtime, a 54-year-old client arrived at the office. Usually quite calm, the man was clearly flustered. He told Kerr he wanted to take his entire $2 million in investments and move it into gold, which rose $70 an ounce on Wednesday — the largest one-day jump in history.

After an hour's conversation, Kerr persuaded the man to let things be. But he understood: "There was a fear in his heart that everything was going to go into a total economic collapse."

On this day, that fear was truly understandable. The Dow closed down 450 points.

At 4 p.m., lawyers packed into room 601 at the U.S. Bankruptcy Court in lower Manhattan, where Judge James Peck presided over the dismantling of Lehman. Court workers set up chairs in the aisles, but the crowd poured out into the hall. A lawyer presented an offer by Barclays PLC to buy parts of Lehman for $1.75 billion; creditors had hoped to get more.

But opposing lawyers argued that the judge could not afford to wait. Lehman — once one of the major forces in the world of finance — now amounted to a melting ice cube, one said.

By the time the 36 seniors in the economics class at Elk Grove High School took their seats, they had fresh material to discuss.

Teacher John Zehnder handed out copies of the Sacramento Bee. "New lows usher in new era," said the headline. He stepped to the dry-erase board at the front of room P-15 and wrote "Federal Reserve" and "Ben Bernanke" in orange marker.

The government's decision to step in and save companies like AIG was nearly unprecedented, Zehnder explained. It was also nothing like textbook capitalism.

"In capitalism, we say, 'Hey, if you're not strong enough to stay in business, you shouldn't be in business.' So what did the government say about AIG yesterday? Can we afford to let them fail?"

"No," students answered in chorus.

Other teachers also grasped that this was a historic week, filled with teachable moments. At the North Carolina School of Science and Mathematics in Durham, N.C., Jim Litle's students were too young to remember the savings and loan crisis of the 1980s.

But they seemed to instinctively grasp the simple idea behind the Wall Street collapse: credit crunch.

"You people are all going to college," he told the class. But unless banks trusted each other and consumers, none of them would have the money on hand to lend them for tuition.

"Somehow we've got to create some way for people to trust each other. Trust is really hard in the financial world," Litle said.

Stocks fell through the morning. In Somerville, Mass., Richart Shortt watched with alarm. Shortt is 63 and semiretired, working as a business consultant. He had seen his stocks fall from $290,000 a year ago to $230,000 a week ago and now to $210,000.

Shortt had planned to quit working altogether over the next couple of years. Now, he told himself, he might have to put off retirement. But would he be able to find work in a down economy, as small businesses cut back on their own expenses?

So many questions, so few answers.

By mid-afternoon, the market was down sharply.

But around 2 p.m., investors sent shares soaring on early reports of what could be a huge new gambit by the government — a massive purchase of poisonous securities. Could this be the magic balm the market had been searching for?

By the time it closed, the Dow had gained 410 points.

"Bear markets are very sensitive to news," said Scott Fullman of WJB Capital Group in New York. "And on a scale of 1 to 10, this one is a 13."

As soon as the opening bell sounded Friday morning, investors poured money into stocks, pushing the Dow up 450 points in less than half an hour. By day's end — after assurances from President Bush and his Treasury secretary — the Dow finished with a 370-point gain.

Which left it almost precisely where it was when the roller-coaster week began.

Out beyond Wall Street, in the economy ordinary people call home, the recovery in the market left most doubts unresolved.

In St. Louis, the Spectors' clothing store was a "ghost town" on Friday, Anna said.

Her husband expressed dismay at the notion that the government might spend billions in taxpayer money to clean up banks' bad debt. In the shopping district near the couple's store, half a dozen businesses have closed recently. None of them was offered a government lifeline.

"It seems really, really hypocritical," he said. "Basically, all these companies that did wrong to get those people into bad mortgages — it's like they're just getting away with it."