Another commentator on NPR noted that the main reason that banks are reluctant to lend to each other or only at very high interest rates is that the lending institutions don't know how much bad debt is sitting on the borrowers books. Seems like the first step in resolving this crisis is open and honest audits, otherwise it's like pumping money into an Enron and having shell companies full of debit popping up all over the place.

Those of us not informed enough -- or not venal enough -- to understand the details of capital markets have to rely upon our intuitions. It's like listening to a lecture about quasars and coming away with the impression that the professor is lying or uninformed. We understand only tidbits of the lecture.

Whom do we trust?

It seems to me the people who control capital are the very people seeking to recapitalize. Putting aside the incompetence argument (why listen to a handless bomb-defuser?), the timing and vagueness of this "emergency" suggests a political gambit.

Declaring an emergency serves as a political disavowal. Whatever happens next will be the fault of those who took action in the emergency (Congress) rather than those who created or enabled the emergency. Bush somehow avoided all blame for negligence before 911 (while successfully assigning Clinton responsibility for ineffectiveness) and has used that tactic repeatedly since. It doesn't matter what the Congress does; Bush (Paulson, etc.) has tried to shift political responsibility onto the Congress. Forevermore, whatever bad happens will be the responsibility of Congress because they didn't act "responsibly" when confronted with an emergency.

Thus.

You wrote:

And Joseph LaPalombara, an emeritus professor of political science at Yale and a veteran observer of Italian politics, wrote that "When this crisis began to hit, the Italian parliament.... passed a measure that said something as simple as this: All banks... that had issued and were holding variable-rate mortgages, and that had raised the interest rates on them, were ordered immediately to return those mortgages to their initial rates....With punishment duly and equitably allotted among the financial institutions depending on how far their predatory lending had gone. I know of not a single member of Congress who has come up with anything like that."

This approach does, in fact, seem equitable and addresses the problem that needs addressing in the financial system as far as I can tell. The other economic troubles we have are not caused by the mortgage crisis. The whole thing is laughable in the sense that while the average American has been in dire straights now for years under the Bush tyranny and ruinous policies of war and tax cuts for the rich, now that the rich guys are having a problem entirely of their own making the whole nation is to come to their rescue including those who have been honest, played by the rules and have been suffering all these years.

But back to the Italian solution, my question is why no Democrat (especially Barack Obama) is pushing this very kind of measure? It is this lack of action on the part of Democrats in Congress to defend the working people of the country that exposes how corrupt they too have become over the years. Instead, they hop right on board to save the fat cats first and claim they are protecting the little guy with worthless guarantees and loophole ridden safeguards.

OhioGuy -- you're not actually arguing for government intervention for it's own sake, are you? Don't you think it would be a good idea to make sure the government is actually doing something, y'know, helpful, before we send it off to intervene? Because one thing I've noticed about a lot of these folks on my television, telling me that we have to give them seventy-eleven kazillion dollars and absolute control of the universe RIGHT NOW or we're all going to die: they've been on my television before over the last couple of years, telling me everything was all right and I should just keep shopping. Maybe I'm just bull-headed, but I'm inclined to take what they say with a grain of salt.

Once again I'm going to go out on my limb and advocate for a plan to focus on the mortgage crisis (rather than or as well as the credit crisis) and embrace the populist standpoint.

I just don't think there's any significant downside to creating a less-than-crash landing for the people who got caught up in the mortgage mess, their families, and the people who live down the street from them.

The main point of this bailout/rescue/recapitalization as I understand it is to make the bad mortgage debt good again. If folks could get past a certain inexplicable mean-spiritedness it would become clear that making some big payments on those bad mortgages at a homeowner level would have the same long-term effect as buying them from Wall Street. In fact it might even be better because the number of foreclosures--read total loss or forced Fannie Mae settlement--will not be as high.

The money will get to the holders of the securitized investments eventually, it would simply be routed from the bottom up rather than from the top down. (And isn't trickle up rather than trickle down what Democrats are supposed to be about?)

#1 uncomfortable fact: the govt--on behalf of the taxpayers (read voters) is going to have to buy us all out of this mess with, yes, taxpayer money.

#2 uncomfortable fact: if that's the case, it makes the most sense to do the buy in the right direction--from the bottom up not the top down. This way neighborhoods see a quick effect and folks can feel their housing situations stabilize.

I know nobody wants to reward people for making bad decisions. But if your dopey neighbors made bad decisions to buy places they couldn't afford on either side of your home, setting it up so their bad decisions don't take your whole street down with them isn't a reward for them so much as just smart thinking in your own interests. ("Bad neighbors! You took out bad mortgages on overpriced houses, creating a housing bubble! You deserve to be foreclosed upon as punishment and so that housing prices can return to normal!" Except that suddenly you've got boarded up houses on either side of you, their copper has been stolen, and crack addicts are using them as flophouses to provide lonely strangers with the oldest service known to humankind. Not exactly a family environment. Dudes, talk about cutting off your nose to spite your face.)

I'm just trying to say it's a bit crazy to fix the capital problem alone when pushing the money further down the food chain would help create a soft landing for the mortgage crisis as well. (Someone please help me with the correct economic terminology for "pushing the money further down the food chain.")