Throughout more than a decade of recurrent crises in nations such as Mexico, Russia and Thailand, the United States offered the same advice: Let the market solve the problem and get the government out of the way.

Even when the consequences of such economic "tough love" included widespread joblessness, soaring poverty and domestic turmoil, Washington insisted on the rule that the market knew best.

Now that it's the United States battling financial conflagration, it turns out there are exceptions to that rule. Such as Uncle Sam's takeover of AIG, the world's largest insurance company. Such as the quasi-nationalization of mortgage giants Fannie Mae and Freddie Mac. Such as putting $29 billion of taxpayer money at risk to facilitate JPMorgan Chase's acquisition of investment bank Bear Stearns.

"We're not doing what we preached," says economist Sung Won Sohn of California State University.

Indeed, in their bold response to the deepening financial trauma, the Federal Reserve and U.S. Treasury appear to have tossed aside the playbook that guided official thinking on the economy for three decades. As a wounded financial system teeters on the edge of the abyss, the economic consequences of allowing major financial institutions to take their market lumps became apparent.

"Disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Federal Reserve warned in a statement announcing its extraordinary $85 billion aid for AIG.

At the White House on Thursday, a conservative president with a business pedigree and no affinity for overweening government made clear that authorities felt they had no choice.

"These actions are necessary, and they're important. ... Our financial markets continue to deal with serious challenges," President Bush said.

Today's made-in-the-U.S. crisis differs from the emerging markets crises that swept Mexico, Thailand, Korea, Indonesia, Russia, Brazil and Argentina from 1994 to 2001. The origins of those countries' problems were found in capricious global capital flows and a mismatch between excessive borrowing in foreign currency and the countries' maintenance of fixed exchange rates.

The current U.S.-centered cataclysm originated in the mortgage market with widespread provision of low-interest-rate loans to people who couldn't afford them and their subsequent sale as securities to institutional investors who barely understood them.

PAST AND PRESENT

But what yesterday and today have in common is a shared sense of financial engines that no longer are working. As the U.S. confronts its day of reckoning, the gap between the economic remedies it urged on others and its own actions are glaring.

In the 1990s, officials of the U.S. Treasury and the U.S.-backed International Monetary Fund urged the leaders of crisis-hit countries to embrace market-oriented policies designed to put their economies on sounder, long-term footing. But the recommendations — to slash government spending and privatize bloated state companies — meant genuine pain for millions and thus real political costs for leaders.

In 2001 in Argentina, millions of members of a thriving middle class were driven into poverty. In Indonesia in 1998, rioters burned shopping malls and storefronts in the capital city before driving longtime dictator Suharto into retirement. And in Russia that same year, the stock market lost three-quarters of its value and annual inflation topped 80 percent.

Officials in these countries at first resisted the harsh reforms, fearing exactly the sort of domestic instability that resulted. But they ultimately capitulated, realizing that their only hope of obtaining needed IMF financing was to comply with the global lender's conditions.

In demanding such painful changes, IMF and Treasury policymakers were guided by an economic philosophy known as the Washington Consensus. Emerging from the euphoria of the Berlin Wall's collapse and the embrace of the market by former socialist countries, the formula promulgated deregulation, privatization and open trade as the only path for countries seeking long-term prosperity.

Now, facing its own choice between the domestic pain associated with economic orthodoxy or postponing it by compromising long-cherished principles, pragmatic authorities have chosen the latter. Federal power has been stretched so far that the near unthinkable occurred this week: The Federal Reserve ran low on money, requiring the Treasury to stage a special $40 billion auction of government securities to replenish its coffers.

GLASS-STEAGALL

Arguably, the last time Americans' livelihoods were this dependent on government was during the Depression. No one expects a replay of mass joblessness at a level not seen before or since.

But as policymakers scramble to craft a lasting answer to today's financial malignancy, echoes of Franklin D. Roosevelt's regulatory activism can be heard along the capital's marble corridors. The 1930s, with its cascading series of bank failures, marked the era when politicians and bureaucrats, desperate to alleviate suffering and prevent future financial disasters, erected an edifice their successors eventually would decry as "Big Government."

One of their signature achievements was legislation authored by Sen. Carter Glass of Virginia and Rep. Henry Steagall of Alabama. The measure prohibited investment banks, which bring securities to market, from owning commercial banks, which take deposits and lend money.

Investment banking is inherently risky, and a bank saddled with enormous losses on stocks and bonds may collapse. That's precisely what happened to thousands of banks in the 1930s.

By the time of the 1990s boom, the financial services industry was campaigning to repeal Glass-Steagall, arguing that foreign rivals were hobbled by no similar restraints. In 1999, Congress assented.

"The pressure was so great that Congress really couldn't resist it," says economist Peter Bernstein. "Nothing really bad had happened since 1982, and those bad things that did happen were transitory."

If important financial institutions failed, market participants and lawmakers alike felt that market forces could restore order on their own, with only minimal government aid.

Maybe they were wrong.