Just as the financial crisis resulting from the burst of the U.S. housing bubble appeared to have peaked, 158-year-old investment bank Lehman Brothers has collapsed and Merrill Lynch has agreed to be taken over by Bank of America Corp. Meanwhile, two days after U.S. authorities refused to bail out Lehman Brothers, the U.S. Federal Reserve has agreed to lend up to $85 billion to American Insurance Group for two years in exchange for a 79.9 percent equity stake.

After the housing-bubble burst surfaced in the summer of 2007, the U.S. government in March played a pivotal role in the sale of Bear Sterns Cos., a leading investment bank, to J.P. Morgan & Co. and then recently decided to take over the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

The disappearance of three of the top five U.S. investment banks within a half year, and now the tumble of major stock markets and the U.S. dollar, have plunged world financial markets into commotion, seriously threatening the U.S., European, Japanese and other economies.

The U.S. government and financial authorities and leading private-sector financial entities had talked about measures to rescue Lehman Brothers, which owed much of its growth to the housing bubble but was poor at risk management. The refusal by the U.S. government and the U.S. Federal Reserve to provide public funds to Lehman Brothers led it to file for bankruptcy protection. Total debts amount to $613 billion, the biggest in the U.S. history. The Japanese Lehman unit has also filed for bankruptcy protection.

Merrill Lynch, meanwhile, has agreed to sell itself to Bank of America Corp. in a $50 billion transaction.

Central banks, including the Bank of Japan, should send clear messages that they will do their utmost to stabilize the markets. The governments and central banks of the U.S. and other major economies also need to quickly work out effective measures to prevent a sharp fall of the U.S. dollar so that the world economy will be spared deeper turmoil.