Dean, thanks for your writing during this crazy time. It would be great for readers if you could explain why economists like James Galbraith and Paul Krugman (whom many here would tend to trust) dislike the bill, but say it's better than nothing and should be passed, but you believe it should _not_ be passed. Where is the difference between you and Galbraith & Krugman?

Also: can you explain the difference between the control in the banks that the govt. would get in the current bill and what you have proposed, which is buying equity in the banks outright (my apologies if I've misrepresented your position)?

Dean,

It may help to offer a few reflections on how the hard facts of the political situation enters into the public statements of economists who have high name recognition. I wonder if they, quite authentically, feel obligated to make an assessment concerning what can be enacted, the gravity of the situation and no action for the next few months.

Bernanke and Paulson seem to have panicked and perhaps for good reason by their own lights, e.g., they thought they had things in hand and knew what to do and it just wasn't working. There is an argument that they have made a bad situation worse.

However, even if they had had some major enlightenment a few years back, it is extremely unlikely that they could make policy proposals that would be acceptable to the administration or to the factions in the House and the Senate that can easily gum up the works. I was surprised that they were able to get a modest stimulus package through.

Economists like Krugman and Galbraith are not exactly jumping up and down. It is more like, "My considered opinion is that it could be worse."

A recession has been inevitable for some time and this kind of calamity was anything but unexpected by some. The reality is that I am running into people who are just now realizing that there really is a problem. A month ago this is not something they would take seriously. Many of the "no" votes were ideologically based, i.e., they were not just "no" for some technical reason.

My point is more about what happens when an economist is really trying to influence policy makers and legislatures. How much of what they say is a reflection of their perception of the immediate political reality? I think there are a lot of people who could come up with a better proposal but I'm not sure they could get it passed and signed let alone even considered... Krugman and Galbraith included in that lot. All they can do is bless or curse or shrug.

A related question is, "Are we paying dearly for panic on the part of Bernanke and Paulson?" We know their strategy was never good. Did they simply let things get to the point where any tactical error was bound to completely destabilize the system.

Dean thanks for some sanity. Now take Nathan out behind the barn and knock some sense into him. If the crisis is as bad as they say, then we should nationalize the banks until this blows over. Then, after zeroing out their equity, we can sell them back. Sounds simple. Otherwise, we should ride out the storm.

Keep them coming, Dean. Your positions are informative and square with common sense. Given the amount of misinformation put out, in areas where I have little expertise, I've learned to trust common sense above all else and question fear tactics.

The out-and-out campaign by the media and congressional leadership to rush this bill should cause any rational person to want to examine it more closely. Even a few of the comments and opinions at TPM(albeit well dressed in traditional liberal clothing) are starting to look something like the state-sponsored Russian web brigades.

Anderson Cooper addressed the bill the Senate is putting together this way(not word for word here, but close as I jotted it down in disbelief): "is this Senate bill due to the outrage yesterday...and because of the complete failure on the bill?" Wow, he just reversed reality without blinking. The outrage was AGAINST the bill itself, not due to the failure of the bill to pass. He conflated the issues which made it sound as though the unprecedented outrage was because the bill didn't pass. What garbage.

Even if the American people were in the process of reversing their overwhelming opinion against the bailout, they hadn't even had time to react to the dow going down (and back up) before he started in with this manipulation at the end of the work day. I guess if talking heads reverse reality or repeat that something will happen enoough, they are confident that they can change things?

McCain also confused the issue saying something like "we must pass this bill right away b/c it's what Americans want and we failed the people."

Are people really that easy to manipulate? I guess we are going to have our answer, very soon.

What about all the front-page reports of a complete freezeup in the credit markets? Of course at this point, the prospect of a bailout must also be contributing to a freeze (and to the various spreads) because you'd be an idiot to lend money now if by holding off a few days or weeks you can make a whole lot more profit elsehwere...

I agree with you Mr. Baker and was listening to the show. But aren't you advising Obama to some degree? Can you not bring these arguments to him? He clearly is not listening to the people's voices on this matter. In fact, he sounds more protective of the con-men on Wall Street than McCain does. He seems tone deaf to the people and is trying to assuage their justifiable anger with typical empty promises of protection and figuring out what went wrong later (aka letting the guilty get away with it). He could put the kabosh on this right now if he chose to or alter it or reshape it entirely.

Seems to me there out to be a hue and cry from the people directly to Obama's office on this.

I disagree with kgb999. The burden is on those wanting a trillion dollars to explain why they need it and how they plan on spending the money.

Simply saying "trust me" does not cut it.

While I am not an economist, I have read the comments of economists, and nothing I have read explains why this bailout is needed. I am of above average intelligence and hold a professional degree, so it should not be THAT hard to explain.

A big part of the underlying problem is no one knows who owes what to whom -- a lack of transparency. Well, the current bailout plan is anything but transparent, and no one is spelling out the details. All we are getting is a vague plan backed up with threats. It looks like the people making the plan are pouring gasoline on the fire.

Also, the bad guys basically are gone. Bear Sterns, Merill Lynch and Lehman Brothers are gone. One way or another, through a buyout or bankruptcy, they are going to be liquidated, their shareholders wiped out, and the creditors will take over what is left over.

As for the remaining two actors, no one is going to lend them money. It's not because of a lack of liquidity, but because they are bankrupt. (As one bankruptcy judge used to say: When you don't have cash or credit, you are bankrupt.) No one in their right mind lends to someone who is bankrupt (whether they have filed in Bankruptcy Court or not). Not unless they can get some sort of super-priority.

Moreover, people do not trust them because these outfits have been run by insane morons who did crazy things like leveraging on a 50 to 1 basis. I mean, would you lend money to someone like that?

Giving these clowns more money to blow is not the answer.

Well Dean, I'm pretty happy to sketch out a scenario worse than the Great Depression for you, though I shouldn't have to because Paul Volcker already did that when he warned of the considerable plausibility of a banana republic style currency crisis, with attendant hyperinflation and, presuming the good fortune that the republic iteslf survives in tact, generationally lasting disintermediation as confidence in the financial system is shattered.

See, this is what I don't understand about economists. Dean Baker is a really smart guy, and instrumental in eloquently advocating for progressive policies. How is it then that he overlooks our precarious net international investment position, the overwhelming significance of recycling of dollar reserves to the financial and economic developments of the last decade, especially official reserves, into our bond market, the impact of negative savings rates in a demographic environment where that is entirely implausible and where investment is overwhelmingly weak, the sheer scale of the mountain of debt that underpins the real economy etc. etc. etc.????????

How is it possible that you could be that smart and yet that stupidly sanguine about what has happened, what is happening, and what will happen as a result of our malign neglect and embrace of 25 years of unchecked credit expansion?? 10 years of double digit unemployment??? We should be so lucky. See the Weimer Republic for more details.

I would bet that there are situations where a lender would require a 30-40% down payment. Investors purchasing housing in Nevada, for instance. Forty-five percent or so of the foreclosures in Nevada are investor-owned properties, and it's easier for an investor to walk away from an upside-down mortgage than for an owner-occupier. Perhaps they're no longer putting the stupid pills in the water, and the banker is saying, "I really don't think this is a good investment. If you insist, though, we'll want an down payment of 40%." I don't like banker-types at all, but I'm not sure I wouldn't do the same thing.