While macro economic developments dominate the headlines these days, there's high drama in the world of Web giants.

Yahoo, Tech Ticker's corporate parent, is in serious talks to acquire AOL, reportedly for as much as $10 billion. Henry Blodget reported yesterday the deal could be announced as soon as today, but later backtracked when a Time Warner spokesman denied a deal is "imminent". (Note, he didn't deny a deal is in the works.)

Given Yahoo's falling stock price, there's inordinate pressure on Yahoo's top executives to do something to stem the tide, no doubt including from board member Carl Icahn.

At this point, Microsoft CEO Steve Ballmer is looking like a winner for having walked away from Yahoo last spring, although the possibility of a new (and no doubt lower) bid cannot be discounted.

Meanwhile, Microsoft has been busy successfully lobbying the Justice Department to stop -- or at least modify -- the terms of Yahoo's ad outsourcing deal with Google.

From ClusterStock, Oct. 15, 2008:

The seizure of stakes in nine banks (with thousands of others to come) was designed to finally return the credit markets to some semblance of normalcy, so consumers and businesses can get access to money again. We're still waiting.

Yes, the price of credit default swaps on the big banks dropped, as traders correctly surmised that these firms are now a lot less likely to go belly up. And bank commercial paper and debt costs dropped, thanks to the new FDIC insurance. And LIBOR dropped a whisker. And TED a tad.

But Treasury yields are still infinitesimal, LIBOR and TED are still sky high, and the economy is still gasping for air.  (See the WSJ's chart here.) Why? Because cash is king, and everyone is scared to death.

Also, a whole bunch of mortgage rates are going to reset soon, thanks to sky-high LIBOR (Citi puts the November resets at $24 billion). This will exacerbate the foreclosure crisis and put more pressure on the housing market.

We know: Be patient. Rome wasn't rebuilt in a day. But note how quickly the credit markets tightened after Lehman failed -- and how immediately everyone panicked when they saw that. And then wonder what will happen if it really does take weeks (months?) for borrowing costs to return to pre-Lehman levels

The day after the news about a watershed change in American capitalism, the story behind the story of how Hank Paulson forced the nations top 9 banks to take capital is coming to light.

After a discussion of the state of the banking system and U.S. economy, the bankers were then unceremoniously handed a one-page term sheet outlining Paulson's plan. The bank CEOs "weren't allowed to negotiate," The WSJ reports. "Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room."

In sum, Hank Paulson made the bank CEOs an offer they couldn't refuse -- like a present-day (and real) Don Corleone.

Some of the other anecdotes that emerged, according to both the WSJ and NY Times:

• Wells Fargo CEO Richard Kovacevich was the most vocal in opposing the deal, but he too ultimately relented. (This morning, Wells Fargo shares were rallying after it reported better-than-expected third-quarter results, although its revenue fell shy of expectations.)
• Morgan Stanley's John Mack was most eager to sign up.
• Bank of America's Ken Lewis gave the most lucid rationale for why banks should sign, reportedly saying: "Any one of us who doesn't have a healthy fear of the unknown isn't paying attention."

Another subplot of the bailout's latest chapter involves JPMorgan, the only one of the big nine banks which failed to rally on Tuesday. Some attributed the decline to rumors Chairman Jamie Dimon is on Barack Obama's short list to be Treasury Secretary. Others attributed it to anticipation of this morning's earnings, which were much better than the expected 21 cent loss -- although revenues disappointed.

JPMorgan shares dipped early Wednesday in reaction -- and after Dimon said "it is reasonable to expect reduced earnings for our firm over the next few quarters" -- but have since turned higher.

The good news is the most recent round of central bank liquidity, involuntary capital injection into banks, and insurance on bank deposits and their debt is having the desired affect. Levels on both Libor and two-year swap spreads fell Tuesday, meaning borrowing costs for and among banks declined.

"Short-term funding markets have begun to respond positively to unprecedented global action to shore up financial markets," writes Michael Darda, Chief Economist at MKM Partners, LLC. However, "we would need to see a substantial and sustained improvement in credit markets to become more comfortable with the idea that stocks have put in a long-term bottom and that growth conditions were likely to improve sometime next year."

Therein lies rub number one of why Monday's record-setting rally was most likely a "relief rally in an oversold market" (at best) vs. the beginning of a sustained bull run.

Rub number two: "Now the [stock] market will turn its attention to what is going to be a deep and painful recession," writes Joe Brusuelas, chief economist for Merk Investments. "The market, once it observes earnings and the dreary economic data that will evolve over the remainder of the year, will see another leg down."

That remains to be seen, of course. But the stock market had a relatively modest dip Tuesday after a big early rally evaporated, and ahead of post-close earnings from Genentech, Intel and CSX, which offered something for everyone.

In the glass-half empty department:

• Genentech's third-quarter profit of 81 cents per share missed consensus expectations by 7 cents, and the company narrowed its full-year EPS guidance range to $3.40-$3.45 from $3.40-$3.50 previously. (Update: A 3 cents per share charge for an employee retention program and 10 cents per share in other expenses more than accounted for the Q3 shortfall, Reuters reports.)
• Intel's revenue guidance - with a midpoint of $10.5 billion - was below the consensus estimate of $10.9 billion. "As we look to Q4, it is hard to know what impact the financial crisis will have on end customer demand," Intel CEO Paul Otellini said in a statement.
• CSX is now targeting the low end of its earnings guidance of $3.65 to $3.75 per share.
• Earlier Tuesday, PepsiCo missed estimates and said it will cut 3300 jobs.

In the glass half-full department:

• Genentech's revenues beat expectations as its four main drugs each exceeded analysts' sales targets.
• Intel's earnings beat expectations and the chipmaker gave robust gross-margin guidance.
• CSX's earnings and revenues beat expectations, with 9 of it 10 segments producing revenue gains "despite ongoing softness" in housing and autos. "CSX delivered impressive financial results in a challenging economy," said CEO Michael J. Ward in a statement.
• Earlier Tuesday, Johnson & Johnson reported earnings and revenue that both beat expectations.

The conversation turning from "global macro economic apocalypse" to individual corporate earnings (and product announcements) is potentially the best news of all, at least in the short term and especially in a low-expectations environment: shares of Genentech, Intel and CSX were each rallying in recent after-hours trading.

Having spent an inordinate amount of time, money, and resources on rescuing the financial system from itself, the politicians are once again turning their attention to that other notable constituency: You.

This week, both Sen. McCain and Sen. Obama announced economic stimulus packages designed specifically to help not big business but the "average" American. Neither side would readily admit this, but the plans actually have quite a bit in common, including:

• Elimination of income taxes on unemployment benefits
• Direct relief for homeowners facing foreclosure (albeit in different forms)
• Allowances for Americans to borrow from their retirement accounts (although McCain's is much stricter)

As for the differences, McCain's plan focuses on investors via lower capital gains taxes and higher write-offs for stock-related losses, each for the next two years.

Obama, meanwhile, wants to expand the Food Stamps Program, provide $50 billion for infrastructure spending by state governments, and double the size of the government's loan to the auto industry to $50 billion.

Then there's the cost. Obama advisers put the cost of Obama’s full economic stimulus plan at $175 billion, the New York Times reports, including $65 billion for a second round of tax rebates. The price tag on McCain's plan is $52.5 billion, the paper says.

Undoubtedly we'll hear more about these plans at Wednesday's presidential debate. The big question is whether Congress will attempt to tackle stimulus in a lame-duck session right after the election, or wait until the new Congress (and presidency) convenes next year.

Hoping to restore confidence and avoid a collapse of the U.S. financial system, Treasury Secretary Henry M. Paulson Jr. announced a government bailout plan, describing it as "extensive, powerful and transformative."

Paulson also said, "We regret having to take these actions. Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."

Plan highlights include:

• Injection of $250 billion into the nation's banks
• The U.S. will guarantee new debt issued by banks for three years, designed to prompt banks to resume lending to one another and to customers
• The F.D.I.C. will offer unlimited guarantee on bank deposits in accounts that don't bear interest — usually those of small businesses

The Treasury will take preferred equity stakes in the nation's largest banks including:

• Goldman Sachs (GS)
• Morgan Stanley (MS)
• J.P. Morgan (JPM)
• Bank of America (BAC)
• Citigroup (C)
• Wells Fargo & Co. (WFC)
• Bank of New York Mellon (BNY)
• State Street (STT)

In contrast, the UK over the weekend took majority stakes in three major banks -- Royal Bank of Scotland, Barclays and HSBC Holdings -- in an effort to shore up their capital.

What about future writedowns?

So is the danger over? Hardly. The plan makes no provisions for forced asset writedowns. In other words, bad assets will remain on the banks' balance sheets or be acquired by the government through the bailout program.

So far, U.S. financial institutions have taken about $650 billion in asset writedowns. NYU Stern economist Nouriel Roubini and others have put the total forecasted writedowns at $1 trillion-$2 trillion, suggesting banks still have $350 billion-$1.35 trillion in losses to take.

Steve Jobs hosts the latest Apple product launch in Cupertino shortly, and rumors are flying about what's in store:

• $1,000 MacBooks
• Possible Blu-ray option in notebooks
• NVIDIA graphics chipsets to replace Intel chipsets
• A possible tablet computer à la iPod Touch

Should any or all of these come to pass, can investors expect a significant bounce for Apple's beleagured shares? Our guest Howard Lindzon, a partner at Knight's Bridge Capital, blogger, and VC investor, is long Apple and calls the company the best in America. Still, he says, the days of a must-own stock are gone, and Apple's stock is broken anyway -- and "a broken stock could go anywhere."

(Go here for live blogging of the Apple event beginnning at 1 p.m. Eastern.)

Picking up where they left off Monday, stocks soared around the world Tuesday and the Dow burst higher to start the session - although soon began to lose altitude.

The convention wisdom on Wall Street is Friday's wild session marked an important near-term low, as verified by Monday's astounding 934-point advance. The initial response to the government's new plan to force $250 billion of capital into banks, insure bank debt, and provide unlimited insurance on non-interest bearing bank deposits was also positive; the plan will help stabilize banks and lower lending rates without the government taking massively dilutive stakes, as in the U.K. and elsewhere. (We'll discuss the plan in detail in an upcoming video.)

But the market remains very volatile and dangerous for non-professional investors, says Howard Lindzon, a partner at Knight's Bridge Capital, blogger and VC investor. Amid the panic of last week, Lindzon was buying favorite names like Apple, Amazon.com and Google, but planned to be a seller into this morning's pop, as he was during Monday's explosive rally.

The bottom line is that even if the government's plan works to perfection and resolves the credit crisis (a dubious proposition, to be sure) the "real" economy appears headed for a very hard landing and earnings expectations remain too high.

If and when the market gets over its newfound euphoria -- if it hasn't already -- and starts to focus on those realities, stocks are likely to suffer another downturn. At that point, the key is whether last Friday's lows hold, Lindzon says.

Coming off the worst week in its history, the Dow posted its biggest-ever point gain Monday, soaring 936.42 points, or 11% , to 9388. The S&P had its biggest gain since 1987, jumping 11.6% to 1003 and the Nasdaq gained 11.8% to 1844.25.

Even those expecting a rally from last week's "oversold" conditions were taken aback by the scope of the advance. "Yes, but not in one day -- and that's half my forecast gain," was how Barry Ritholtz responded to a question about whether this was what he expected when he cited 10 bullish indicators on Friday.

Rationality has clearly taken a backseat - on both up and down days - but many observers attributed today's outsized gains to a combination of fundamental factors, including:

• Stocks having become cheap - or at least attractive - on a valuation basis after their stunning fall. (Even as he forecast a "doozy" of a recession, hedge fund legend Julian Robertson made the bull case for Apple, Microsoft, Baidu, Visa and Mastercard on CNBC.)
• The G7's undefined pledge to "take decisive action" and use "all available tools" to alleviate the crisis, followed by the U.K.'s defined injection of $64 billion into three big banks.
• Mitsubishi UFJ closing its investment in Morgan Stanley, at terms generally favorable to the U.S. investment commercial bank.
• The plan for the U.S. bailout, as outlined by Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari.
• Expectations for details on Kashkari's outline to emerge tomorrow following a not-so secret meeting between Bush administration officials and top Wall Street executives.

The U.K.'s decision also showed a willingness to act quickly that has, to date, been largely missing from the United States' response, raising the question: What are they waiting for?

A quick review of terms of the U.K. liquidity injection provides at least part of the answer. "Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, halt dividends and stop paying cash bonuses to directors," as Bloomberg reports.

Clearly, Treasury Secretary Hank Paulson - and most Americans - reject the idea of government taking that kind of control of previously private companies; rest assured the banking lobby is working hard to prevent it.

The U.S. government would much prefer to have problems resolved via private capital - even with some government assurances - as appears to be the case today with Mitsubishi UFJ's stake in Morgan Stanley.

The risk, of course, is that the U.S. government is going to eventually be forced to follow the lead of governments in U.K. Iceland, Ireland and elsewhere, and waiting only means dealing with worse problems down the road.