That won't change the fact that nearly everyone got into this game and screwed up royally, freezing up the credit supply. No one wants to undergo chemotherapy, either, but it's something you have to do to get better.

The analogy I've been using is this: this is a gamble, and we're all being asked to ante up. It's that, or we are out of the game entirely and YES things would get much, much worse.

It isn't just scare tactics when money market funds and stable funds are trading below par.

Clearly, 90% of the "rescue" package is to "rescue" Wall Street from their own bad investments. It has nothing to do with Main Street at all, no matter how many "protections" you slap onto it.

I generally agree with your commentary, but I don't on this one.

Your using the term "Wall St." too broadly. The focus needs to be on "lending institutions," and then "borrowers," and what their inability to get credit will do to the general economy.

Most economists think their inability to get credit would destroy, not just damage, a lot of the economy.

The other problem is this: Wall Street from their own bad investments.

It's not just "their" investments. Ask people who have seen their retirement investments shrink. It's a lot of people's investments. Millions are at risk, not just a few CEOs.

I realize most everything is over-simplified and over-generalized in politics, but I don't think Pres. Bush would be doing what he's doing if he didn't believe a far greater, and broader, calamity could develop.

The Great Depression didn't start off by itself. It followed the market crash. The market went first, and the country followed. That's what they're afraid of happening.

Yes, but at what point do we start asking why and how credit markets froze up or we have these giant swings in the market.

The Masters of the Universe wouldn't manipulate such things to "send a message" or create a panic or anything, would they?

Who are the institutions that will recieve these funds?

I hate to be an apologist for Corker, but he's clumsily stumbling on to a valid point. There are three crises right now: the housing market crisis (Crisis H), the banking crisis (Crisis B) and (even though cons are in complete denial about this one) the regulatory crisis (Crisis R).

On the one hand, the three crises are tangled in a complex web. Crisis R led to Crisis B which led to Crisis H, and Crisis H fed back on to Crisis B.

However, in untangling the mess it's sometimes necessary treat them as distinct. Crisis B has mutated in to a classic liquidity crisis - call it Crisis B2 - that's not related to the housing market, and subsidizing homeowners won't fix it.

This is not to say that solving Crisis H and Crisis R isn't critical - both in saving the real economy and in preventing a recurrence of Crisis B2 - or that helping homeowners wouldn't be useful in the medium to long term. But the liquidity issue has to be addressed first. Our financial circulatory system sucks, but unfortunately its all we have.

It sure would be helpful if our leaders would make these distinctions, and present comprehensive, step-by-step plan. What's the point in chemotherapy for Crisis B2, it's sensible to wonder, if we're just going to dive into toxic waste and let the cancer spread again?

...needless to say, it's also sensible to wonder whether the bailout as proposed will fix B2.

I have trouble balancing my checkbook so shouldn't comment, but will anyway. From CNBC I've learned that the credit markets have frozen up because banks won't lend to each other. They don't trust each other. This entire crisis is due to the lack of integrity of bankers and the books they keep. They have the money to lend, just have no confidence in what they are telling each other. No trust, it's that simple.

Yes, but at what point do we start asking why and how credit markets froze up or we have these giant swings in the market.

Largely depends on who wins in November.

The Masters of the Universe wouldn't manipulate such things to "send a message" or create a panic or anything, would they?

Markets generally don't like instability, except for maybe the arms markets.

I don't think anybody manipulated anything, as much as they're trying to head things off.

The Administration was caught a little off guard by this; they were hoping it would happen some time after November. But, although it looks like they're playing catch-up, they're really not. They're ahead of the curve, not behind it. They're not ahead by much, though.

Who are the institutions that will recieve these funds?

My intial understanding is that an institution will have to ask for them. Probably any institution who wants their "bad" debt removed, sort of like road side recycling programs. The government takes the debt and tries to make something out of it that somebody will someday want again.

They don't trust each other. This entire crisis is due to the lack of integrity of bankers and the books they keep.

Yep, and the way the credit rating system works. It's backwards. Most of these institutions had good credit ratings, until a couple of months ago right before they went bankrupt.

This is Crisis B2 in action. Yikes.

We cannot trust this administration to honestly inform us of a crisis, much less to manage a crisis. They are creating panic so they can get one last shot at robbing the treasury and giving it away to corporations.

Everyone now sees this hitting home in shrinking IRAs, etc. Trouble is, it really isn't reasonable to expect the market to only go one way (up). The only way this happens is through market and fiscal manipulation. We need a correction, painful though it may be. And it will be painful with or without a bailout (inflation v. lack of credit).

Do you really think that there will never be any money to lend? No. Eventually it will come back. But "eventually" wouldn't suit the purposes of this administration.

That's definitely a valid concern; the performance of the politicians thus far does not inspire confidence that they would follow up with needed reforms. And yes the continuing deterioration of mortgage-backed assets is contributing to the liquidity problem. But I'd still argue that the immediate liquidity problem has grown far beyond the bad asset issue* and is the most pressing because it threatens to quickly spiral out of control.

Part of the problem here is that the plan to buy bad securities is really just a back-door, overly complicated way of recapitalizing the financial sector. It should have been done on the Swedish model, not the Japanese.

* should have added that this is because capital is fleeing the system.

We cannot trust this administration to honestly inform us of a crisis, much less to manage a crisis.

An old friend, a retired Navy Chief, put it this way (I'll clean it up a bit):

"With Bush's track record he couldn't sell women on a troop ship."

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Do you really think that there will never be any money to lend? No. Eventually it will come back.

You're underestimating the neccesity of credit in the economy. It's not like people will just resort to cash once they run out of credit.

They don't have cash.

Sven's right. The problem is liquidity and, maybe not a complete freezing of lending, but enough of a reduction that it will do a tremendous amount of damage to the economy.

This is also not a "correction." It's a breakdown.

You can argue what caused the breakdown, but unless you fix it, you're still going to be stuck by the side of the road.

You can argue what caused the breakdown, but unless you fix it, you're still going to be stuck by the side of the road.

It's not just 401k losses that affect "main street." (And please, could we bury that worn out term?) If businesses can't borrow, they eventually start cutting jobs. If people are scared to spend $$, that impacts jobs (e.g., I have a friend who was going to remodel a couple of rooms next month. Now she's putting it off. Her contractor was all lined up - now he's SOL.).

It's all inter-connected, and like it or not, we're all affected.

I do think that regulatory reform is much needed. If Obama wins, I think you'll see that.

It's not just 401k losses that affect "main street." (And please, could we bury that worn out term?) If businesses can't borrow, they eventually start cutting jobs. If people are scared to spend $$, that impacts jobs (e.g., I have a friend who was going to remodel a couple of rooms next month. Now she's putting it off. Her contractor was all lined up - now he's SOL.).

Inter-connectedness. That's what they are really worried about.

How much of the 2/3 of the economy that is consumer spending is put on the plastic?

Do we really want to find out?

I don't.

There is money to lend, and you can go out and get a mortgage today. You can get credit cards today. However, there are very few people looking for loans. Most people have maxed out credit, have already bought houses, while others are un or under employed, and most others do not have the down payment that is suddenly required (again). Personally, I think anybody that buys a house now is not too smart. The bottom has not been hit. House prices are still declining.

A friend has a son looking to buy a house, and has been approved for a mortgage. I told them to wait at least a year. The house he is locking in on is in foreclosure and has been empty for a long time, but the bank still wants 80% of what it sold for 18 months ago and will only allow 48 hours before you have to close on it- no time for real inspections. They offered lower than what the bank is asking and the bank just said no. No counter offer or anything. I told the guys to tell the bank to get $^%#ed!

A reporter on NPR gave an example of how bad things had gotten - John Deere had seen the rate on thier bonds jump from 5.5% to 6.5%. GASP! What a shock! I just borrowed money at 6.5% myownself. This is supposed to be a disaster???? I can remember borrowing money at 13.5% and being happy to get it.

OK so the economy was constrained in the early 80's and I'm not hoping we go back to those times but I recall the economy humming along quite fine at 9-10% interest.

I want to hear about solid businesses and creditworthy customers being unable to get money before I am convinced this is a disaster.

If Rachel's friend is secure in her job I hope she will go ahead and remodel her rooms. Now is the time it is patriotic to spend money if it involves putting Americans to work.

The only specificity with regard to the "Regulatory Crisis" seems to revolve around the repeal of parts of Glass-Steagall (1933) and the Bank Holding Company Act (1956). Ignoring the rather silly blame game (passed Senate 90 to 8, House 363 to 57, Clinton Signed and Lobbied in its behalf) and bucking the current equally bipartisan trend of blaming this action for the current situation, I'm still not following the causal effect between this action and our current crisis.

Maybe I'm just dense, but this action essentially only granted U.S. based financial companies the same sort of flexibility that financial institutions have long had in Europe in order to permit U.S. based financial institutions to compete more effectively with the European banks. Specifically, it allows banks, securities firms and insurance companies to merge and to sell each other's products. So why does this lead to catastrophe in the U.S. if it has been functioning just fine in Europe for decades? There's absolutely no credible analysis being offered beyond the superficial. None of what is available stands up under close scrutiny. WTF is really happening here folks?

Excellent explanation. The best I've read so far. So I understand why banks don't want to lend to other banks and financial institutions. When does that leap over to banks not wanting to lend money to functioning profitable businesses? Like you say, there's money out there to be lent. The government is running the printing presses at full speed from what I hear.

sounds so good, doesn't it? And increasing the rate of home ownership, especially among low-income families? In my working life, I saw the effects of government policy going back, at least to Clinton, to subsidize mortgages for folks who were, simply, not credit worthy. Good intentions, bad consequences.

Reform4: I didn't think the rescue plan was to only buy the bad debts, but to secure mortgage packages that would include some timely, some delinquent? The good with the bad, hence $700B

I saw the effects of government policy going back, at least to Clinton, to subsidize mortgages for folks who were, simply, not credit worthy. Good intentions, bad consequences.

So how many bad mortgages are there, and how many were made to people who weren't credit worthy, as in, what percentage of those loans make up the problem with the actual mortgages, the foreclosures, the mortgage backed securities, and the swaps that went with them? Honestly, I'd like to know. Nobody seems to be able to tell us.

Why not follow the trail all the way back to FDR in the 1930's with the FHA? That's where the now "conventional" 30 year loan was invented. This was the government's first foray into the world of encouraging home ownership.

This whole line is a complete red herring with zero bearing on the causes of the current crisis. It's not even a very well thought out red herring. The houses going into default aren't in the "affordable" category. They're not in "red lined" neighborhoods. There's no way to even begin to twist the numbers to sell this distraction. In the words of Penn and Teller, BULLSHIT.