HUNDREDS of depositors are lining up at banks and waiting for hours in the hot sun to withdraw their money from a failing financial institution.

They have lost confidence in the ability of the authorities to safeguard their hard-earned money and fear that their savings are not safe with the bank. In some places, police have been called in to calm tempers.

In another scene, being played out in a different part of the country, stocks that were previously seen as rising stars and perhaps even as blue chips are being sold down by investors. Government support failed to assure shareholders and the stocks plummeted.

No, these two scenes are not being played out in a Third World country in Latin America, Africa or Asia. This is happening in the most developed country in the world -- the United States of America.

The exodus of depositors from IndyMac Bank (one of America's largest savings and loans bank with US$32 billion [RM104 billion] in assets), which some describe as a slow-motion "walk on the bank", would be labelled as a "run on the bank" if it had happened in a developing or emerging economy.
Enter the US Treasury! Its most senior officers, including Treasury Secretary Henry Paulson, worked over the weekend to "hastily arrange" a rescue of the giant finance companies, Fannie Mae and Freddie Mac.

The bailout is being described as the "most striking regulatory shift in modern times". For a long time, Washington has insisted that the government did not stand behind the debt of Fannie Mae and Freddie Mac. But the safety plan hammered out over the weekend sends the opposite message and it is clear that the government is determined not to let them fail. The bailout plan seeks to increase the Treasury's unlimited line of credit, which, according to some, is like giving them a "blank cheque" that could put the "taxpayer funds at risk".

This is the second time in just four months that the Treasury has scrambled over the weekend to urgently cobble a rescue plan for a major financial institution.

In March, frantic phone calls over the weekend were made to "save" investment bank Bear Stearns.

The Federal Reserve had turned out to be a "buyer of first resort" instead of pursuing its traditional central bank role of "lender of last resort". Through JP Morgan, the Federal Reserve had then extended a lifeline of US$30 billion to Bear Stearns.

This time, the rescue involved saving, not merging, two institutions, and the numbers involved were exponentially bigger: Fannie Mae and Freddie Mac have combined debts of US$1.5 trillion.

They own or guarantee US$5 trillion in mortgages. They have contracts with other institutions worth an additional US$2 trillion to hedge the risks behind those mortgages.

For a long time, US policymakers have lectured the world on the need to "unleash the animal instincts of the market".

Asia was told, during the Asian financial crisis, to allow banks to fail to prevent "moral hazard" and "contagion". China was told to stop lending to protect factory jobs. But the same rules do not apply to the US.

It needs to bail out its institutions which were seen as "too big to fail", to prevent "further erosion of confidence" and a crisis of liquidity.

Paulson had also argued in March that "we need these institutions to continue to lend and facilitate economic growth".

The "too big and too important to fail" institutions in the US are failing. And the fallout from the subprime mortgage crisis, which first emerged just about a year ago, is still taking casualties -- and bigger ones each time.

According to the New York Times, "troubles are growing so rapidly at some small and mid-sized US banks that as many as 150 out of the 7,500 banks across the US could fail over the next 12 to 18 months. Other lenders are likely to shut branches or seek mergers".

"This is a very serious banking crisis. There's just no question about that," said Donald G. Ogilvie, a long-time president of the American Bankers Association and now a senior adviser at Deloitte LLP.

If this situation were playing out in a developing country, officials from the Bretton Woods institutions -- the World Bank and the International Monetary Fund (IMF) -- would be in the "troubled capitals" in no time, even if they had to fly half way round the world. It has been easier for them to focus further away than it is to see what is happening just a couple of streets away from H Street in Washington.

As losses continue to mount, now said to exceed US$400 billion and by some estimates set to ultimately cross the US$1 trillion mark, the IMF is finally beginning to pay closer attention to Pennsylvania Avenue.

The IMF board of directors has finally ruled that it will carry out the Financial Sector Assessment Programme in the US.

The German newspaper Der Spiegel said this "is nothing less than an X-ray of the entire US financial system". This will be the first time that such a review of the US is being undertaken since the establishment of the Bretton Woods institutions after World War 2.

About two-thirds of the IMF's 185 members have "endured the painful procedure", but not the US.

With the rapidly deteriorating situation in the US, with an increasing number of institutions being bailed out and more likely to call for help, the IMF has no choice but to take a close look at the health of its host nation. The poor health of the US economy and financial institutions is threatening and affecting the global economy.

As part of the assessment, the Federal Reserve, the Securities and Exchange Commission, major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will also be required to answer questions during interviews.

Their databases will be subjected to stress tests; worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the greenback.

With the risks to the growth of the US economy "skewed to the downside" and with its "contagion" spilling to the rest of the world economy, will the IMF do a thorough job and prescribe the right medicine and the correct dosage to safeguard the interests of the many individuals affected by the fallout of the US financial and economic crisis?