Does any one know if the increase in LIBOR rates is related to the $630 billion that Bernanke borrowed? Borrowing that kind of money last night is sure to huge consequences - is this one of them?

The financial crises that get lumped together and called the Great Depression - inter alia - led to the rise of Naziism, which led to the Second World War which led to isolationism on the part of most Americans in 1939. (Remember, very few were excited to go fight the Nazis when they were rolling through France or Poland.)

Then Pearl Harbor happened which brought the US into the war.

Then the draft happened on an unprecedented scale accompanied by rationing of resources, full employment, and de fact mandatory savings.

THIS is what produced the so-called Greatest Generation.

Sorry, Hilzoy, but I'm a bit on Riehl's side on this one, though not in his words. Up- and down-cycles in the economy, even truly bad times, are unavoidable. Trying to stop them is just as fruitless as trying to hold back the tide.

And efforts to do so produce all sorts of unintended consequences, such as the proposed efforts to keep home prices artificially inflated. That only keeps out of the home market those who have been prudent all along.

Sorry, Hilzoy, but I'm a bit on Riehl's side on this one, though not in his words. Up- and down-cycles in the economy, even truly bad times, are unavoidable. Trying to stop them is just as fruitless as trying to hold back the tide.

And efforts to do so produce all sorts of unintended consequences, such as the proposed efforts to keep home prices artificially inflated. That only keeps out of the home market those who have been prudent all along.

Smaller-scale efforts to restructure mortgages for those who are about to lose their homes? Yes.

Full on bailout of the finance industry? I have to say, painfully, no.

To be fair, I think Riehl is trying to see a silver lining. And it's somewhat true: imagine how much energy we could conserve if people still had Depression-era thinking.

But yeah, we should certainly try to do what's best right now, whatever that might be. It's the general philosophical difference between being a progressive (always trying to improve things) and a conservative (always assume that things are the way they are for a reason).

That only keeps out of the home market those who have been prudent all along.

Not to be cruel, but I hope you're still patting yourself on your back when the empty homes in your neighborhood have squatters living in them.

The economy is not a morality play. Things that hurt other people have a strong possibility of hurting you too. We're all in this together and while it sucks that some folks might end up getting bailed out even though they don't "deserve" it, it sucks even more when they drag you down with them.

All "sensible liberals" agree that we have no choice but to prop up a failed, house-of-cards system by handing over a trillion dollars of the taxpayers' money to the most incompetent, corrupt, blatantly criminal administration in the history of this country so they can "solve" the "crisis" that they created.

We cannot afford to let the weapons inspectors complete their work, we must invade now so the smoking gun isn't a mushroom cloud.

"While no one should want a major meltdown of the American and world economies, there is a common sense rationale for simply allowing it to burn. I see people going on about a trillion dollars in value lost. But in any real sense, that value wasn't really there. (...)

Amen. If Bush warns me my house is going to decrease its value one more time I'm going to HURL. It will lower in PRICE. There's a difference. The house is in as good a shape as ever. A lower price simply means more people who are frugal with their money can buy them now instead of these cash-strapped people that let the place go to hell or investors that rent it out to folks who can't even manage the no-interest loan that lured in the poor knuckleheads that had no clue about financial gravity.

Left out of the observation are the spoiled babies that don't want to pay TAXES for massive military expenditures, debt service, and high tech medical care and free drugs for seniors.

Those of us who refused to get into debt because the greatest generation told us what a bad idea it is, aren't the least surprised at the ensuing financial ruin.

Riehl's being as ass, of course, but the "let it burn" idea does have a kernal of reason to it. Over the last decade or so, there's been an awful lot of "wealth" created that has absolutely no basis in economic reality. A trillion dollars cannot disappear in a single day on the stock market, unless that trillion never actually existed in the first place.

Squeezing that phony "wealth" out of the system is probably a very good idea. Doing it through Great Depression II: Electric Boogaloo is very much not a good idea.

Mike

Does it occur to anyone that the country might be a lot better off if we can muddle through with some lower-cost, less sweeping interventions until an Obama administration and a new Congress with a larger (and hopefully more progressive) Democratic majority takes office in January, at which time we might get some legislation that would have more to do with addressing real economic problems and less to do with handing out hundreds of billions of dollars to CheneyBush's kleptocratic cronies on Wall Street?

The S & L's were allowed to vanish without a bailout, and then the economy rebounded. The investment banks have made enough profits the past seven years to finance their own bailout. Their investors, unlike Democratic moderates, know they are a lost cause. The hoarding of liquidity will not stop with the $700B. The bailout money will only be used to shore up balance sheets and prop up stock prices. None of it will be loaned out, making the crisis worse and leaving nothing in the cookie jar for people who will become hungry.

If the banks are not providing capital to retailers so they can purchase Christmas inventory, then the banks are doing the retailers a great favor.

"but the Great Depression produced many things"

Here's three of them: Hitler, Stalin, and Mussolini. Anyone want to bring those guys back? Well, okay, the Bush family would probably want Hitler back so they can finance him. But anyone else?

That's right. All you wishing for an economic apocalypse are no less batty, hysterical, and misanthropic than the End Times evangelicals.

At least their apocalypse doesn't have a chance of happening.

It really does not cease to amaze me how populists who know nothing about economics are unwilling to trust experts, ie economists, on what is actually going on. The problem is essentially one of trust. Banks have some capital, but they don't trust that other banks have capital as collateral. That is, they don't trust the valuations of assets, because of the problems valuing the derivative products and default swaps. So, they are hording their capital, rather than lending. And without short term credit the economy as a whole grinds to a halt.

The problem is essential one of how to promote trust in an environment of uncertainty. The Paulson/Bernanke strategy is to eliminate the uncertainty by assigning value (by buying up the toxic paper). The theory is that with certainty trust will be established and things can move forward. Of course, trust is not the kind of thing that can be predicted. That is why they don't know if this gambit will work. But if the actors are rational it should.

At least that is my understanding.

"I see people going on about a trillion dollars in value lost. But in any real sense, that value wasn't really there. (...)"

Riehl's wrong about a lot of things, but he's right about this. We aren't 'losing' a trillion dollars in value, we are uncovering a trillion dollars worth of fraud.

McCain's 3x5 cell might look pretty good in a few years. That seems to be his standard for when things start to look bad.

I don't want to see a crash, but as has been said, there are cycles. There are things I believe that can be done to avoid catastrophe, but it should be the people that made obscene amounts of money pushing worthless paper. The stimulus that was passed gave more money to the top, as have all of Bush's fiscal policies. It's time for them to pay up. Pass a stimulus that gives money to mortgage payers, instead of people who never get enough. I believe this is a sham, another ploy for the Bush/Cheney debacle to take more money for his buddies.

I can't believe this thread has been open so long and no one has offered up:

Life is pain... Anyone who says differently is selling something.

The financial crises that get lumped together and called the Great Depression - inter alia - led to the rise of Naziism,

If we're going to play this game, then without the Great Depression we'd never have had the New Deal and the rise of liberalism for at least a few decades. With this logic, we absolutely need another Great Depression to destroy conservatism once and for all, for the betterment of all mankind. Imagine what will happen with an ascendant liberal movement: more justice, more freedom, more ethical government, better environmental policies, less racism, fewer wars, etc.

Look, nobody knows what will happen, and nobody wishes increased unemployment, poverty, dislocation, etc. At the same time, the idea that spending piles and piles of money to buy more and more junk and bigger and bigger houses and cars, most of it financed by credit, has been an environmental catastrophe. We have all bought the myth of "more spending equals more prosperity" and we've been using up resources and polluting the planet. Fewer junk in fewer stores bought by fewer people over the holidays will mean more unemployment and less material prosperity, but it will also mean less oil used to make plastic crap, less oil use to transport all the crap that, etc. plus more time spent with family and friends and the pursuit of simpler pleasures.

Cheer up Hilzoy, move to a smaller house, buy a smaller car, use less, borrow less, be more frugal. Life will be better and you'll damage the planet less. Yes, good times indeed!
____________________________________________

Please note those grainy old film clips of men wearing coats, ties and hats with brims standing three abreast in long, long lines for a meal during the Great Depression.
Not gonna happen like that this time.
It will be more like a Mad Max movie. Brutal and Darwinian.
And the rich folks in gated communities will find the fences and gates aren't quite high enough.

So I take it from this post you would rather borrow thousands from your grandchild's future so you can avoid any hardship today.

Sorry wrong answer. We as a nation, and in some cases, individually, have been living well beyond our means. How long do you think this could go on? Forever? How is borrowing even more money going to solve it? You certainly aren't going to be paying for this bailout. Nope, just throw it on the National Credit Card.

Besides, the Paulson plan was fatally flawed. It wouldn't have solved the crisis, but it would have provided life boats for first class. Numerous economists (ones who have actually predicted this crisis) have been offering alternative proposals that, apparently, Congress doesn't wish to consider.

So why does it have to be the Paulson plan or "nothing". Watching everyone freak out over this readily demonstrates how Bush has been able to get his way so often. He just tells the people its his way or disaster and they meekly fall in line.

I'm sure the president enjoys your compliance.

"At least their apocalypse doesn't have a chance of happening."

You sure about that? Imagine the End of Days Christianist Sarah Palin with her finger on our nuclear trigger. I can't imagine her not pushing the button. After all, she thinks she'll be raptured before the bombs land. What's she got to lose? Well, everything, but she doesn't know that.

There will be a great economic fall out from the past twenty-five years of bad economic policy. There is no bailout great enough that can prevent it. To avoid an apocalypse, Congress should begin planning for and funding a welfare system that will mitigate the suffering of people, not saving the corrupt system that created the crisis. Attempting to save the corrupt system that created the crisis will only make the suffering of people worse. That the only action being taken is to rescue the finance criminals should be enough to convince most people the 'bailout' is a scam. Unfortunately, the same people who bought the lies about invading Iraq are buying into the lies about saving a corrupted Wall Street. Wall Street will take the bailout money, hoard it, and then ask for more, using the same apocalyptic rhetoric as today.

I sure hope Riehl doesn't find him self in court one day seeking redress for "pain and suffering" as a result of someone else's negligence or misconduct.

Things you write on the internet don't go away, and some enterprising attorney just might share with the judge Mr. Riehl's opinion that pain and suffering are unavoidable, so, you know, what's the big whoop about compensatory damages?

The Plan: Good or Bad? This was Bush's baby, so what do you think?

Any of the cavalier types that think a melt down might be good thing ever lived in their car? Ever tried dumpster diving for groceries? I don't recommend it. Poverty sucks.

I used to travel a fair amount in Mexico. Twenty years ago, Mexico didn't have a functional credit system, at least not one that extended down to small business owners or consumers. I wish I could take you back to that see what that was like. Reminded me of stories my parents told me about the Great Depression.

We can't cure the disease until we understand what it is. We are in panic, knee-jerk reaction mode now, for no reason other than Bush yelled, "Fire!"

I suspect he did so because it was his last chance to save his legacy before the election buries his reputation in the mud and stink left behind by his administration. He knows now that the Democrats are going to increase their majority, and he can see John McCain self-destructing right in front of him. Meanwhile, the economy is tanking on his watch, and if he doesn't do something drastic, he's going down with it, and all his rich friends and cronies are, too.

So the bailout. Once last big shot at saving his legacy, and stealing another trillion from ordinary people.

Cynical? Yes. Plausible? I think so. Probable? I don't know, but I don't trust these people at all. They don't care about us. They care only about themselves.

So I say, let's calm down and see what kind of crisis this really is, before taking action that could come back to haunt us. What we really need is another FDR modern new deal. We won't get that if we put this monstrosity together and pass it. We'll be stuck with this hog.

The Great Depression brought about a Democratic administration for some 20+ years.

What can I say, Democrats fixed the Republican mess and then won WWII. Most people -- you excepted, of course -- like competence, Mike, which is why they're rejecting the Republican party you still -- inexplicably -- carry water for.

Can we stop with the "but I am responsible" and take a dose of reality and realize no one cares about you, what we are care about are the people who aren't as fortunate as yourself who find themselves unable to pay their bills and how that will effect each and everyone of us.

Can we get past this ideology and deal with the cards we have ? If we don't get this debt removed from the books of people who lend money, no one will be able to borrow and w/o borrowing the economy has 100% of failing. If you are cool with that, just say it, don't beat around the bush with credit lectures.

Let's make decent jobs available to people struggling with their mortgages ? Give them the chance to make good on their debt, don't assume their debt. A public works programs to keep mortgages from failing. I think it has always been ridiculous that a country this great doesn't have a Public Works program guaranteeing anyone who wants to work, a job.

Can we stop with the "but I am responsible" and take a dose of reality and realize no one cares about you, what we are care about are the people who aren't as fortunate as yourself who find themselves unable to pay their bills and how that will effect each and everyone of us.

Can we get past this ideology and deal with the cards we have ? If we don't get this debt removed from the books of people who lend money, no one will be able to borrow and w/o borrowing the economy has 100% of failing. If you are cool with that, just say it, don't beat around the bush with credit lectures.

Let's make decent jobs available to people struggling with their mortgages ? Give them the chance to make good on their debt, don't assume their debt. A public works programs to keep mortgages from failing. I think it has always been ridiculous that a country this great doesn't have a Public Works program guaranteeing anyone who wants to work, a job.

A trillion dollars cannot disappear in a single day on the stock market, unless that trillion never actually existed in the first place.

Of course it can have existed. All items of value have no intrinsic value other than what we assign to them. If we say the stock market had one trillion plus value yesterday then that's what it had, because that's what everybody agreed to price it at.

Consider the dollar bill in your pocket. What's it worth? $1? Only if everyone else agrees that that's what it's worth. If no one else but you thinks so, then it's worth no more than any other brightly colored piece of scrap paper is worth, and good luck trying to buy anything with it. And that's why the current crisis is so dangerous, because our financial system is failing to agree on what anything actually is worth.

One of the good things that came out of the Great Crash in '29 was a great deal of sensible regulation, which was supported because people had seen how bad things can get if you let financial geniuses go unsupervised. We've been slowly removing all that regulation, and now we're having to relearn the same lesson our grandparents learned all those years ago.

I'm not hankering for another Great Depression, and I fully realize this collapse will affect me too. But I don't think we can use tricks to avoid this great reckoning we've put ourselves in for. I certainly don't think the Bailout will do it. In any case the tricks just put off the reckoning, they don't avoid it.

Plenty of hard working Americans are living out of their cars and eating out of dumpsters today. Many were yesterday. Congress, Wall Street and Democratic moderates could care less.

Wealthcare started with the tax-rebate, then with the bailout of Bear Sterns. In July we had rumblings about FM2, later they did get bailed out, and then AIG.

So.. 100s of billions of dollars have been spent already in an attempt to "fix" the economy.

Wealthcare is just the latest attempt to sooth the markets.

Anyone could see the housing market was in trouble a year ago.

Therefore, Wealthcare should have been on everyone's radar for a year. NOT WEEKS.

Meanwhile, the huge cost of the Iraq War continues to mount.

Where's the payback for taxpayers with that debacle?

Bush and the regulation-is-evil mindset has destroyed our credibility and our "creditability."

I just don't know which banks are showing "strategic behavior,"
and waiting for wealthcare before they loosen credit strings again.

We are all tying ourselves in knots trying to figure out the tangled web that Wall Street has woven!

Say.....I know somebody who's got lots of American dollars. China!! It's been working fine for a couple of years now; China ponies up the bux necessary to keep the war in Iraq grinding along for another month. Why not just ask them for another huge loan??

Mind you, that might just make them think the country's insolvent, and cause them to call in their notes all at once. What do you suppose would happen then? What if it happens anyway? No, it wouldn't, of course, because the U.S. and China are great pals. Remember the screams of public outrage when China tried to buy UNOCAL? I bet the Chinese government remembers, too.

Heckuva job, John and Phil. The market is self-regulating; yup, yup, yup.

The S & L's were allowed to vanish without a bailout, and then the economy rebounded.

What??? There most certainly was a bailout, not of the S&Ls themselves but of the assets they held. The Resolution Trust Corporation, which operated from 1989 to 1995, bought up the real-estate and various other assets held by the S&Ls and then sold them off -- which was (very) roughly the same thing that the current bailout was planning to do, buy the toxic assets off the balance sheets of the banks.

I used to take night-time fiction writing classes.
One person would ALWAYS write a story about growing up during the Depression. Of course, they were always "happy" because they didn't know they were poor, because everyone else was. Jolly times all round. Frankly, they made it sound so good, I was sorry I missed it . . . . sorta. I have found that misery really doesn't love company.

Wait. You mean when Bush & Paulson, The Dynamic Douche-o, ran around screaming about the market, they were crying Fire! during a flood?

Shocked! I am ... Nah, not really.

I just have to note that none of this is really happening. There's absolutely no problem at all. Just ask Phil "nation of whiners" Gramm or John "the fundamentals of the economy are strong" McCain.

It's absurdly illogical and naive to watch a catastrophe unfold and claim confidence that doing nothing and encouraging the catastrophe to happen will therefore allow good things to happen-- just because eventually things turned around for a brief time after the last Great Depression.

The truth is wee have absolutely no sense if it will play out the same way. There are many different dynamics at work now (i.e., the internet and our ability to communicate worldwide within seconds to name just one), so it's apples and oranges.

Also, this take assumes that this is the only best option--maybe there are several better options that don't include necessary suffering--living in cardboard boxes, waiting in bread lines and so forth.

I completely agree with Hilzoy--especially now that I have realized I can't let my outrage at how this was allowed to happen get in the way of what the best decision is right now. I say too many people are confusing the issue this way.

The next thing I've had to come to terms with is realizing this will NOT be for a cure for all, but it sure as hell is better than sitting back and allowing the train wreck to happen, to do nothing.

I also like what Hilzoy said the other day about deferring to the experts--Rachel Maddow had on a fantastic economist last night's show. I recommend folks check out the interviewat Maddow's MSNBC site).

She provided great context and called this a credit contraction and went on to explain the gravity of the situation and guess what?

I really 'got it'.

As an American who is not yet that ready to throw the towel in, not quite that fatalistic, who believes we can muster up our intellect and ingenuity, I am not ready to allow for such tragedy to knowingly happen when I see some options left that may indeed help avert horrible things.

Catastrophic alarmists like Naomi Klein who insist we must let it all fall apart as the ONLY way to advance might be appealing to those who like to be right about how wrong the Republicans have been (and some should be jailed in my estimation, starting with President Bush). She makes for high time drama and rally up a lot of cynical and angry lefties, but that's not helpful for me or the country right now, IMHO.

There most certainly was a bailout, not of the S&Ls themselves

So why does this proposed bailout save the banks? Why is not the solution that actually worked for the S & L crisis not being followed?

For these guys everything is a moral issue. People have lived beyond their means and now they must pay. Well, sure. But they seem to have no notion that there might be, you know, TECHNICAL problems in the financial system. The thermostat is broken and winter's coming on, but they think we should all freeze because it would be good for our souls.

"What's it worth? $1? Only if everyone else agrees that that's what it's worth."

Thanks, Stefan. You raise a good point. Four years ago, I was trying to buy a book off some seven year old kid in Cambodia. He wanted me to pay seven dollars, but he wanted it in Thai baht. I didn't have that much baht on me, so I had to pay in US dollars. The new price? Ten dollars. I asked why the price went up, and he replied: "American dollar no good, it lose value. Thai baht much better." He was right. Since then, the US dollar has lost 30% of its value relative to the Baht. If only our politicians were as wise as the kids in Cambodia....

Like many above, instinct tells me the "let it burn" approach has validity, albeit painful. This is a case of the chickens (or lame ducklings) coming home to roost. It could, and should be the definitive object lesson on the absolute failure of a deregulated, free-market economics.

While economic fluctuation seems inevitable, skillful and responsible management can temper its excesses. This was clearly evident in the Clinton years, and there was no reason why it could not have continued. Lack of imaginative foresight, incompetence and the upside-down philosophy ushered in by the Bush tribe systematically undermined all the stability painstakingly introduced by former administrations.

What is incomprehensible, however, is the polls that suggest that 45% of the electorate are still prepared to give this gang of thieves and liars their vote.

Boy, is this another CLUNKER post, Hilz.

Riehl is spot-on, and you condemn him?

Hmm, how much do YOU have on credit right now?

to do nothing

Bear, AIG, Fan and Fred have already been bailed out. Much has been done.

Hmm, how much do YOU have on credit right now?

Well that's sort of irrelevant to the argument, now isn't it? I hope your paper doesn't go tits up if the credit markets freeze up. If they do, I hope that your house is paid for.

Keep spinning, Red State Mike. Even if Democrats are only competent 20% of the time, that beats the Republicans you shill for by twenty percent.

P.J. O'Rourke said -- back in the 1980s, yet! -- that Republicans claim that government doesnt' work, then get elected and prove it.

People like competence. Thanks to Bush and all those dunderhead Republicans you support, incompetence is now part of the Republican brand. As a proud Democrat, I think you for your support of the Republican Party's self-destruction. Shame on you.

"Riehl is spot-on, and you condemn him?"

Will you feel the same way when your company can't meet its payroll? If so, I admire you. But something tells me that you might not like not getting paid. The credit crunch will create cash flow problems for businesses. And when that happens, someone's not getting paid. It may be you, it may be the company's vendors, and in rare cases it might even be the investors. But someone has to take the loss. I work in high tech start-ups and I've seen a lot people lose a lot of money. And it's usually not the people who started out with it. It's usually been me. I could easily buy a house with the money that has not been paid to me.

People have lived beyond their means and now they must pay.

The American economy has no secret savings that can be used to 'bailout' the failing economy. All of America has been living beyond their means. America has mortgaged the future and the future has arrived. Borrowing more money to keep artificial living standards high no longer works because the confidence that Americans can work their way out of their debts no longer exists, even among America's bankers. When everyone lives beyond their means, everyone's lving standards will fall eventually. That time is now, but of course most people do not want to reduce their livng standards, so they think Congress can magically bailout the economy. It cannot. The bailout will only make the tab greater. The bailout will not fix the underlying fundamental problems or our economy, but mask them and make the reckoning even worse. The sooner Americans realize they have squandered their wealth, the sooner they can earn it back.

Hilz, further comment re Riehl — it's credit-fueled greed on "Main Street" as well as Wall Street that got us into the mortgage related issues in the first place.

Many mortgages now gone sour were not by naive first-time buyers. Instead, they were by:
1. Second-time buyers wanting a McMansion, and in part for the myth of home equity;
2. People buying a second, third, fourth, etc. home for rental income;
3. People buying homes to "flip."

We don't bail out stockholders (even in the earlier, individual company bailouts, bondholders kept their preferred positions over stockholders). Why should we bail out these types of mortgage owners?

Hmm, how much do YOU have on credit right now?

Absolutely everything, same as with you, unless you have a lifetimes's supply of canned goods and ammunition hidden away somewhere. Everything you own -- your cash, checking account, savings account, jewelery, 401K, IRA, 529 college plan, house, car, etc. etc. only has value because all the other players in the economic drama are willing to agree together to assign it such value. If they don't, well, a wheelbarrow full of millions of dollars won't buy you a stick of butter -- just as happened in Weimar Germany, for example.

Many mortgages now gone sour were not by naive first-time buyers.

Many, but not most. Most mortgages in default are by primary home owners.

Why should we bail out these types of mortgage owners?

So that theyy don't drag the rest of us down with them?

Think of a medical analogy -- you may not like immunizing the guy who never took care of his health, you may feel "well, if he gets sick it's his fault" but do you really want him infecting everyone else? Same here -- you may not like rewarding irresponsible behavior, but sometimes you have to do what you don't like in order not to suffer far greater consequences.

Fostert... I work in a small biz, less than 50 employees. Very much Main Street and not Wall Street. No, I'm not worried.

Even per your company, isn't at least part of that Wall Street playing Fear Factor?

That's the flip side of making less money -- a bit more financial security.

If Passive Pelosi had any conejos, she'd go to Mukasey and say, "While you're appointing a quasi-special prosecutor on the attorney firings, how about one on mortgage and MBS fraud."

Can anyone explain the relationship between the banks who are afraid to lend each other money, and the investment houses, which I thought the bailout was to address? IOW, why would the bailout of investment house bogus assets loosen up the banks confidence in lending to each other. Maybe I'm missing something, and the bailout did address bank bogus assets. Just trying to keep up.

No one's going to end up in a minivan because of this banking crisis. Oh, and who cares about families that are forced to live in minivans anyway? The homeless have been around since the Reagan years and there's been little effort to address the economics of that problem. Reckless financiers and irrational investors get the welfare almost every time with few questions asked; the homeless, the poor, the disadvantaged: forget about it.

"It may sound harsh, but the Great Depression produced many things - one of them was called the Greatest Generation." Ok. But could we just skip another world war?

"Even per your company, isn't at least part of that Wall Street playing Fear Factor?"

No, it's Wall Street cutting back on their investment in my clients' companies. We're on the front lines of the economy, and we're already getting hit hard. But you're next. I'm used to this kind of thing and am prepared for it, are you? And is everyone? Most Americans don't see these credit issues up close and personal. And the last time they did, they started following idiots like Father Coughlin and Huey Long. And in other countries, they followed idiots like Hitler and Mussolini. Economic collapses don't just hurt the wealthy, they start wars. And big ones.

Watching everyone freak out over this readily demonstrates how Bush has been able to get his way so often.

Are you familiar with the story of the little boy who cried, "wolf"? Do you remember how it ends?

The Great Recession was cause by a restructuring off of the English monetary standard to our own, and the restructuring of the protective tariff system.

The Great Depression was caused by mis-handling this process. Banks were not ready for the change. COngress was late in recognizing the effect of protective tariffs, and the bank authorities at first attempted to maintain a peg to the English pound.

But if we go back to the fundamental restructuring with a better tariff and monetary system, we find that the old system was designed specifically to offer federal guarantees to the economy, import protection and a dollar ties to the English Sterling.

It is the federal guarantees and protections that cause the disruptions. We might actually cause a depression if the government interferes in a manner not conducive to restructuring. Remember, the issue here is selling something that China wants, not protecting homeowners from misguided banks. That is, like the initial effort in the 1928, we might strengthen the protections that got us into this mess, like pouring money at the housing industry, which the Paulson plan does.

If we do something, we should do something that makes our imports more competitive. If the investment banks are trying to restructure toward more export industries. If so, then whyt would we pour money back into housing mortgages?

Can anyone explain the relationship between the banks who are afraid to lend each other money, and the investment houses, which I thought the bailout was to address? IOW, why would the bailout of investment house bogus assets loosen up the banks confidence in lending to each other.

The banks and the "investment houses" are often the same institutions, as a result of Gramm-Leach-Bliley, which removed the prohibition on those two functions being performed by the same entity that had been in place since the Great Depression, a prohibition intended specifically to stop the kind of conflicts of interests and frauds which had occurred during the 1920s, and which have cropped up again since GLB and which contributed directly to the present crisis.

"Then why did the Democrats oppose and kill additional regulations to be put on Fannie Mae and Freddie Mac in 2005?"

Because those regulations were not going to be put on the fully private mortgage firms. Freddie Mac and Fannie Mae were late to get into the subprime business. They got in because they couldn't compete against the unregulated companies without those loans. Had the Democrats not blocked the regulations, the situation would have been the same, except that we'd be bailing out other mortgage companies instead. Money always flows to where regulations don't exist. The only way to stabilize things is to apply regulations evenly. The purpose of those additional regulations was to put the FMs at a competitive disadvantage so that regulations would cover a smaller portion of the market. It was an attempt to mask deregulation by making it look like regulation.

Gosh: last time, someone decided I was an Israeli; this time, people are making assumptions about my lifestyle.

I have nothing on credit, at least if we define 'credit' in the usual way. I have a mortgage, 30 year fixed conforming, for what was, about a year ago, about half the value of my home, so it would take a lot to put me underwater. I drive a Prius, when I drive at all.

I'm not sure I see what the point of all this is, but since people seem to think my credit history, type of car, etc., are relevant to something, what the heck.

As for this: "We are in panic, knee-jerk reaction mode now, for no reason other than Bush yelled, "Fire!"" -- that might be why some people are scared. It's not why I am.

"but the Great Depression produced many things"

Here's three of them: Hitler, Stalin, and Mussolini.

Stalin became General Secretary of the CPSU in 1922 and consolidated his sole power in 1927, so can hardly be even remotely credibly characterized as a product of the Great Depression.

Actually I do remember the "Boy who called Wolf". The boy's flock got eaten. Not the villager's.

Ignore Paulson and Bush. Up until now, Paulson has been consistently wrong about this "crisis". Turning to him for the solution is folly.

There is time to do this right. Ask Congress to come up with their own plan. There are literally dozens of plans being offered by economists who actually saw this coming. They should be able to help craft legislation that will ease the credit crisis, minimize taxpayer losses and force most losses onto those most responsible.

Otherwise, don't be surprised when the country is 700 billion poorer and people are still living in their cars.

"The banks and the "investment houses" are often the same institutions"

That's a real issue. We now have companies with such complex financial relationships that they can be whatever they want to be. We say: "let's regulate banks." And they say: "we're not a bank anymore, we're an investment house." Then we say: "let's regulate investment houses." And they reply: "That's fine, we're an energy distribution company now." Don't believe me? Then answer this question: what did Enron actually do? If you can answer that question in under 300 pages, you are a master of simplification.

Hilz, and people defending Hilz, you might want to read this roundup of economists at TPM . Jeffrey Miron, Visiting Professor in the Department of Economics at Harvard University, among others, says, “let ’em fail,” if need be.

Enron stole.

"Stalin became General Secretary of the CPSU in 1922 and consolidated his sole power in 1927, so can hardly be even remotely credibly characterized as a product of the Great Depression."

Fair enough, and you may have noticed that I already dropped Stalin from my later postings (I caught that flaw). But I will stand by Hitler and Mussolini. They used the financial crisis to gain power. Well, that and burning down the Reichstag.

If we get ourselves into a similar situation, we will get the same results. We are no better than those that have preceded us. I am continually humbled by a statement I heard from a woman in Thailand: "Why do you care about history? The same thing happens every time." I still don't have a comeback for that. Anyone else want to give it a try? We Americans are not exceptional, and we will not be immune to a global financial crisis. We've already proven that, but somehow we think it will be different this time. So, what's so different now?

It occurs to me that this discussion bounces between to to competing world views. One is a pragmatic point of view that takes the world and situations as they are and looks for best achievable outcomes.

The other side views the world through an ideological or moralistic prism that says, "this is the way things are supposed to work." "We aren't supposed to reward bad actions." "If you weren't smart enough (or moral enough)to avoid a bad mortgage product, too bad." "Punish the fat cats."

I've got say that I'm pretty fed up with the pieties of both right and the left. Ideologues are largely responsible for the last century's greatest atrocities. I say take your revolution and shove it. The masses you profess to support can ill afford it.

"So have the other mortgage companies been crashing also?"

My mortgage company, Countrywide did get bailed out earlier this year (privately, because that was back when "the fundamentals of our economy were sound"). But a lot of mortgage debt isn't really in mortgage companies anymore. It's spread out across many companies that are now failing. Like, say, Wachovia and WaMu. And that's just the ones that failed recently. Companies are now failing so rapidly that the term "biggest failure ever" is being applied to a new company every week. It's getting hard to keep track of.

"And isn't Fannie Mae in a special category due to its status as a GSE...?"

I don't know, is it? AIG didn't have that kind of guarantee, but they got their bailout. And they got it with the equity stake that I think we should get on this bailout. But Lehman didn't get the bailout, because they weren't big enough. I really don't see any relationship between government guarantees and bailouts. The relationship is with size. If you're big, you get bailed out.

So have the other mortgage companies been crashing also?

Yes. Where the fuck have you been?

Brojo, the point about paying for the fact that we've been living beyond our means was only the preface to my actual point.

The economy is a machine. Credit is like oil. If we don't have it the machine will seize up. The fact that the problem is due to incompetence or even outright thievery doesn't matter at this point, because we're all going to suffer if the machine seizes up, regardless of whether we've personally been frugal or spendthrift. Let's make sure we have enough oil to keep the machine working, and then we can figure out who to punish later, ok?

We're still going to have a pretty bad recession. Let's not turn it into something worse by making a morality play out of this.

"I say take your revolution and shove it. The masses you profess to support can ill afford it."

Amen, brother. But maybe John and Paul said it the best:

"But if you go carrying pictures of Chairman Mao
You ain't going to make it with anyone anyhow"

It might be a bit off topic, and it might not allude to the belief that people who don't promote a particular scary-thing-scary-thing-scary-thing scenario about the bailout failure are destined to raise their children in a minivan---but I'm pretty damned certain that I'm not the only person on the planet who realizes a simple fact:

The DOW closed higher today than it was right before the House started voting yesterday---and it did so without any old bailout bill.

It might actually be a good thing that Boehner and his crew went 2-for-1 against this thing, if for nothing else but to force Congress to come up with a better bill. First there will be some GOPers who vote for this thing, no matter what's in it---that's for certain now. Second, Bush's back is against the wall; there's no way he can afford to reject a bill that's packed full of Dem goodies. And third, a Dem-heavy bill completely isolates McCain, forcing him to embrace something that the far Right will abandon him over, or forcing him to denounce after putting everything on the national line for it in the first place.

Plus, the banks are playing their cards close on credit for their own selfish reasons. In the end, I don't think ANY bill will loosen the credit markets up to the point where they should be, and someone's eventually going to have to step in and nationalize the banks, just to get the economy started back up again.

That "someone" will NEVER be John McCain---and THAT is why he's going to get his head handed to him on a platter in five weeks' time.

Period.

The markets are amoral, but they know America must consume less, produce more and pay off its debt if the economy is to recover. That is the consequence of mortgaging the future.

We're still going to have a pretty bad recession. Let's not turn it into something worse by making a morality play out of this.

Well said. I'm afraid that some of my liberal brethren are making noises that remind me of the rightists who love to point at the poor and say their poverty is solely their fault. Whatever twinge of moral Schadenfreude some will feel at watching some of the well-off go down should be tempered by their knowledge that all of those at the top who go down will drag a hell of a lot more of the less well-off down with them. Remember, for example, that at Lehman for every one high-flying banker who lost his job there were three to four secretaries, messengers, security guards, receptionists, assistants and/or tech suport guys who lost theirs as well.

The market determined every high-flying banker, secretary, messenger, security guard, receptionist, assistant and/or tech support persons at Lehman were no longer producing enough returns and so put them out of business, not any leftist revolutionary or liberal regulation. Propping up Lehman with public finances would have been an economic drag on the economy because it no longer produced enough quality goods and services to pay for its existence, according to the market and Lehman's own investors. Propping up an entire industry, one that produces few quality financial services, with a minimum of a trillion dollars, may be worse for the economy as a whole than its failure. It is reminiscent of the Soviet system in its scope and intent.

Congress should be planning for and funding a long term relief program for the unemployed, especially since Bear, Fan, Fred and AIG have already been bailed out. The unemployed will be society's biggest problem, but can they really rely upon the finance industry to provide them with productive employment or even a little food and shelter?