. . . credit has locked up . . . .

What's your evidence that this claim is correct?

Don't bother answering. There isn't any.

Of course this is true. Just check the difference between the LIBOR, the rate banks lend one another, and the FED rate. The FED is virtually giving money to the banking system, and yet banks are not lending to one another. But my point is precisely that this can rather quickly change. And is most likely to.

I like your pep talk and agree that it is not the end of the world. But must take exception to this:

We know that, if we can keep up more or less current levels of employment, we can retard a new cycle of mortgage defaults, and thus allow the government, and the financial institutions it will own, to eventually redeem much of the paper it is acquiring at fire-sale prices.

Today housing remains over-priced, prices will likely fall over the next year or so as much as they have already fallen. This means the number of defaults will increase also. Every mortgage that goes under water is another potential default. It remains possible that the $10 trillion in mortgages are being backed by less than $7 trillion or less in collatoral. No one is willing to put a price on today's outstanding paper. This part of the problem will continue to worsen for at least another year.

The big uncertainty is how many people who currently can make their mortgage payments make the financially sensible decision to walk away from their under water mortgages.

Going out on a limb here, but I think what Ellen is saying is that this economic crisis is really not one. The pyramid schemes that some entities of the financial sector have been pedalling here and abroad have collapsed and the entities that have been so engaged want the government (us) to bail them out.

I can believe it. May sound wacko, but I've always believed that Lehman took it in the neck as a convenient way for Paulson/Goldman to get rid of some competition.

Ellen, there seems to be a misunderstanding here. The article you sent us to explains the LIBOR for October, and says "The problem is more than banks unwilling to lend to each other, they are also unwilling to borrow from each other. Banks can get all the funding they need (and then some) from their central bank so they do not need to seek a loan from another bank." All consistent with the fact that, a) banks have become distrustful of each other's assets, and b) the central banks have been trying to alleviate the problem by injecting liquidity. There may be some extra-curricular technical issues that need more explanation, but if what you are saying is that credit did not really lock-up, especially after Lehman failed, that major companies have not had to go directly to the FED, and that this whole think is a further Wall Street conspiracy to extort more billions, then even Wall Street critics like Paul Krugman have been rolled.

. . . if credit lock-up [were admitted not to have] been a problem? What would that have meant--and might mean--for public policy? Bernard Avishai

It would mean that we'd pause, take a breath, and act sensibly instead of running around like chickens with our heads cut off while spending $700 billion (Treasury), $150 billion (Congressional add-ons), $1.8 trillion (FRB, currently), and who knows how much more but more for sure.

Here's how John P. Hussman, Ph.D. puts it, rhetorically:

1) How many people do you know whose bank has failed and have had any difficulty recovering their deposited funds? Anyone?

2) Do you personally know anyone whose money market fund has “broken the buck” and has not received the full assurance of the government that their claims will be paid in full?

3) Have you yourself had any difficulty making any transaction (not tightly related to your personal credit rating) in any aspect of daily life such as credit card purchases, grocery, gas, shopping, or for any other purpose.

If -- a big if -- money has to be funneled from the Fed to the real economy, there are many, many banks which are not in difficulty and which can perform the service: PNC, BB&T, Northern Trust, US Bancorp, even Wells Fargo to name a few. The big, defalcating Wall Street banks can be left to proceed on their way to where insolvent businesses always go.

I continue to be amazed and shocked that "expert" liberal economists, ordinarily proud of their skepticism, stand mesmerized, stupidly drooling, in front of a fantasy.

Ok, so help me understand here.

The LIBOR is a measure which is supposed to allow us to draw conclusions about what is going on in the part of the financial landscape where banks borrow from other banks. It's a useful measurement unless 1) it isn't useful at all, meaning that the measurement happens to follow along with an activity rather than predict or explain it.

Or 2) Circumstances change, in which case one can no longer look at the conclusion and assume the circumstances.

Ellen, which do you think it is? Was the LIBOR ever a useful measure or have circumstances changed such that it's not useful at this time?

(To make an analogy--if we look at the decline in smoking related deaths over the past 10 years, we could conclude that fewer people are smoking, which would be the correct conclusion, or we could conclude that smoking is somehow less dangerous than it previously was, which would be the conclusion cigarrete makers would love us to draw.)

If the LIBOR doesn't tell us what is happening, what does? And is it irrelevant now that the stock market has rallied and we can all get back to wondering why Sarah Palin does that weird thing with her hair?

Ok so LIBOR isn't useful in current circumstances, and the TED spread, derived from the out-of-whack LIBOR, doesn't tell us what we think it's telling us. (I'm willing to do without the academic paper; I probably wouldn't read it anyway.)

Perhaps this is a new time, and the old measurements need to give way to new ones. What is/are current measures that might tell us what is happening--and what should be the response? I do think that if we are coming to the conclusion that everything is different, we ought to be able to say how, and provide an outline of how to deal.