Okay, let's hear from all those media commentators and politicians who screamed about the stock market plunge on Monday in response to Congress' rejection of the bailout. With the market closing lower today than it did on Monday should we assume that the bailout didn't work?

Should we be screaming about the hundreds of billions of dollars lost in retirement accounts and pensions? Or was that just something they talked about when they were pushing for a Wall Street bailout?

If Congress passes the bailout it will be demonstrating an extraordinary belief in the power of redemption. In the past, I have noted the fact that Secretary Paulson's failure to recognize the housing bubble, and the economic and financial havoc that would be created by its inevitable collapse, contributed to the disaster we now face.

It turns out that Secretary Paulson played an even more direct rule in bringing down our financial system. The NYT has a superbly timed piece reporting on how a 2004 change in an SEC rule allowed Bear Stearns, Lehman, and the other major investment banks to leverage themselves to unprecedented levels. Among the highlights of the story is the fact that Treasury Secretary Henry Paulson was one of the main people pushing for this change in SEC rules.

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Today's the big vote. The nation's political leadership has carried out a full court press for this bailout. They have frequently ignored the facts and commonsense (since when do we make policy based on stock market swings?) and repeatedly tossed out the specter of the Great Depression to push their case.

It's clear that the overwhelming majority of the public thinks that this Wall Street bailout stinks, but Wall Street has immense political power and it is likely that it will get its way.

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The Federal Reserve Board chairman described the credit squeeze as being "as severe as any supply-induced constraint ever, other than from policy actions." That statement should help to prompt Congress into quick passage of the bank bailout bill, except this quote is from February of 1991, and the chairman at the time was Alan Greenspan.

The economy is in a recession and banks always tighten up on credit in a recession. When the economy's growth prospects are in question, it puts the health of any particular business into question. Therefore, banks will be far more hesitant to make loans during a period of economic weakness. There were literally hundreds of news stories about the credit squeeze in the 1990-1991 recession.

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That's easy. You ask them how failure to pass the bailout will give us a Great Depression.

The odds are that your favorite DC intellectual type has uttered some dire warning like that. After all, they all heard some authority like President Bush or a highly respected news reporter make such a claim. All right-thinking people know that we just have to give $700 billion to the Wall Street crew or the economy will collapse.

While all right-thinking people might know we need the bailout, just about all right-thinking people don't have a clue as to what they are talking about.

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In spite of its best efforts, the Bush administration failed to push through a $700 billion give away to Wall Street. President Bush conjured up scary images of the Great Depression on national television. He even partially backed away from his initial demand for a complete blank check for Henry Paulson. But the public refused to send their tax dollars to Wall Street banks run by incompetent bankers, and they insisted that their representatives in Congress listen to their wishes.

While the editorialists are busy denouncing members of Congress for surrendering to the vulgar masses, it's a good time to quickly check the score card. The United States is in a recession and facing the worst financial crisis in almost 80 years because the folks currently in charge were out to lunch.

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If you have a real story, you don't have to make up phony stories. That's pretty straightforward.

I've heard lots of phony stories. Much of the country's political and economic leadership has been running around raising the prospect of the Great Depression and a breakdown in the banking system (I actually had taken the latter seriously). These stories are absolutely not true.

There is no plausible scenario under which the no bailout scenario gives us a Great Depression. There is a more plausible scenario (but highly unlikely) that the bailout will give us a Great Depression. There is no way that the failure to do a bailout will lead to more than a very brief failure of the financial system. We will not lose our modern system of payments.

At this point I cannot identify a single good reason to do the bailout.

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I have been awoken from my dogmatic slumber (credit goes to the spouse). Let's suppose that the worst happens and the financial system freezes up and none of us can use our credit cards or ATMs. This is truly an awful situation that we should absolutely try to prevent.

However, if we get here, the world does not stop. The Fed and Treasury will have to step in and take over the banks. There would be no alternative.

This is exactly what many economists argue should happen anyhow (I'd put myself in that boat, with some qualifications). So the outcome of the worst case scenario is a really frightening day in which the whole world financial system is shaken to its core, followed by a government takeover of the banks. Eventually the government straightens out the books and sells them off again. But the real threat here is not to the economy, it is to the banks.