In a time like this, when tempers are riding high and many Americans are close to panic about their jobs and finances, you have a special responsibility to consider the accuracy of what you say and the consequences of inflammatory and erroneous statements. In the last few days, manifestly distorting my words and pulling them out of context, you have accused me of wanting to exclude white males from jobs generated by the stimulus package. Anyone who takes a moment to examine what I actually said and wrote knows this to be an absurd misrepresentation of my position (see this). My goal is and has always been to create as many opportunities for as wide a group as possible, and not exclude anyone from access. There is and has never been any ambiguity about this. The hate mail I have received since your broadcast suggests that the mischievous consequences of your demagoguery are potentially dangerous, in addition to being destructive of rational and constructive political discourse. I urge you to take responsibility for your words. Words and ideas have real world consequences, and you have demonstrated a cavalier disregard for both.

America has embraced Lemon Socialism.

The federal government -- that is, you and I and every other taxpayer -- has taken ownership of giant home mortgagors Fannie and Freddie, which are by now basket cases. We've also put hundreds of millions into Wall Street banks, which are still flowing red ink and seem everyday to be in worse shape. We've bailed out the giant insurer AIG, which is failing. We've given GM and Chrysler the first installments of what are likely to turn into big bailouts. It's hard to find anyone who will place a big bet on the future of these two.

It gets worse. While Washington debates TARP II, the Federal Reserve Board continues to buy or guarantee or provide loans for a vast and growing pile of questionable financial and corporate assets, much of which are likely to be worth far less than the Fed has paid or guaranteed or accepted as collateral. We're talking big money here -- so far over $2.4 trillion. (The entire TARP -- parts I and II -- in combination with the proposed stimulus package come to just over $1.5 trillion.)

Taxpayers are on the hook for this Fed bailout money, too, of course. We have to pay the interest on the ever-growing debt used to make these payments or guarantees and loans. Yet while TARP II and the upcoming stimulus package are receiving a great deal of attention, this much larger public commitment by the Fed is not. That's partly because the media doesn't much of understand it, but also because the Fed is doing it in secret, using provisions of its charter never before utilized, and avoiding discussion before the full Board of Governors for fear such meetings would be subject to the Freedom of Information Act.

Put it all together and at this rate, the government -- that is, taxpayers -- will own much of the housing, auto, and financial sectors of the economy, those sectors that are failing fastest.

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America has embraced Lemon Socialism.

The federal government -- that is, you and I and every other taxpayer -- has taken ownership of giant home mortgagors Fannie and Freddie, which are by now basket cases. We've also put hundreds of millions into Wall Street banks, which are still flowing red ink and seem everyday to be in worse shape. We've bailed out the giant insurer AIG, which is failing. We've given GM and Chrysler the first installments of what are likely to turn into big bailouts. It's hard to find anyone who will place a big bet on the future of these two.

It gets worse. While Washington debates TARP II, the Federal Reserve Board continues to buy or guarantee or provide loans for a vast and growing pile of questionable financial and corporate assets, much of which are likely to be worth far less than the Fed has paid or guaranteed or accepted as collateral. We're talking big money here -- so far over $2.4 trillion. (The entire TARP -- parts I and II -- in combination with the proposed stimulus package come to just over $1.5 trillion.)

Taxpayers are on the hook for this Fed bailout money, too, of course. We have to pay the interest on the ever-growing debt used to make these payments or guarantees and loans. Yet while TARP II and the upcoming stimulus package are receiving a great deal of attention, this much larger public commitment by the Fed is not. That's partly because the media doesn't much of understand it, but also because the Fed is doing it in secret, using provisions of its charter never before utilized, and avoiding discussion before the full Board of Governors for fear such meetings would be subject to the Freedom of Information Act.

Put it all together and at this rate, the government -- that is, taxpayers -- will own much of the housing, auto, and financial sectors of the economy, those sectors that are failing fastest.

Consider too that the government already finances much of the aerospace industry, which is still doing reasonably well but depends on a foreign policy that itself has been a dismal failure. And a large portion of the pharmaceutical industry and health care sector (through the Medicare and Medicaid, the Medicare drug benefit, and support of basic research). These are in bad shape as well, and it seems likely the Obama administration will try to reorganize much of them.

What's left? Most of high-tech, entertainment, hospitality, retail, and commodities. So far, at least, we taxpayers are not propping them up. And when the economy turns up -- perhaps as soon as next year, most likely later -- these sectors have a good chance of rebounding.

But the others -- the ones the government is coming to own or manage -- are less likely to rebound as quickly, if ever. If anyone has a good argument for why the shareholders of these losers should not be cleaned out first, and their creditors and executives and directors second -- before taxpayers get stuck with the astonishingly-large bill -- I would like to hear it.

It's called Lemon Socialism. Taxpayers support the lemons. Capitalism is reserved for the winners.

The banking crisis is worsening as the economy continues to sink. It's not just that bank balance sheets are still stuffed with "toxic" assets probably worth far less than what they're listed for -- subprime loans mixed up with all sorts of other things. It's because more and more individuals and businesses that had been credit-worthy six months ago can't make their payments. As a result, bank shares are plummeting. So what should the new administration do?

Set up an aggregator or "bad bank" to buy up assets the banks want to unload -- along with the conditions I set out a few days ago designed to prevent remaining shareholders, creditors, executives, traders, and directors from profiting off taxpayers.

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Almost every economist will tell you the stimulus has to be massive to have any real impact. Even Marty Feldstein, who headed Ronald Reagan's Council of Economic Advisors, told Congress it had to be $800 billion. But a price tag like that scares Republicans and so-called "Blue-Dog" Democrats who worry about government debt.

So here's Obama's strategic choice. He can fight for the biggest stimulus possible - twisting arms and counting noses to get a bare majority in the House and sixty votes in the Senate. That's how Ronald Reagan and George W. Bush got their huge tax cuts, and how Bill Clinton got his first budget through Congress.

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Today, at noon eastern standard time, we have a new president. And after all the pomp and parades and parties are over, President Obama will turn to his first major job, which is to revive our moribund economy, which means attending to getting his stimulus package through Congress.

Almost every economist will tell you the stimulus has to be massive in order to have any real impact. Even Marty Feldstein, who headed Ronald Reagan’s Council of Economic Advisors, told Congress it had to be $800 billion. My own view is at least $900 billion. But a price tag like that scares Republicans and so-called “blue-dog” Democrats who worry about government debt.

So here’s our new president's strategic choice. He can flight for the biggest stimulus politically possible – twisting arms and counting noses to get a bare majority in the House and sixty votes in the Senate. That’s how Ronald Reagan and George W. Bush got their huge tax cuts, and how Bill Clinton got his first budget through Congress.

Or Obama can aim to get the backing of a much larger majority than he needs to get the stimulus enacted – including a majority of blue dogs and Republicans. To do this he’d likely have to settle for a smaller stimulus package – one that may not be enough to jump-start the economy.

Why would he ever choose the second strategy? Because his goal is not just to get the biggest stimulus package he can squeeze through Congress. It’s to get a Congress that’s mostly united behind whatever stimulus package emerges. This would ensure that Republicans and blue-dog Democrats take some ownership of the package, and therefore responsibility for making it work.

If they feel ownership and responsibility, Obama could return to them later if more money is needed, and probably get their backing. Just as important, he starts to build bipartisan support for other things that have to be done in the next few months – keeping the U.S. auto industry
afloat, reducing mortgage foreclosures, and devising new regulations of Wall Street. And he lays the foundation for a more united Congress capable of tackling a new health-care system, a new system for reducing carbon emissions, and reform of Social Security and Medicare.

It’s not the strategy his predecessors used to get their economic plans enacted. It’s not hardball politics, and it may not be the best move for the economy in the short run. But given the challenges our new president and our nation face over the long run, this may be the smartest politics and smartest economics.

It looks increasingly likely that a big chunk of the TARP II funds will be used to set up what's being called an "aggregator" -- or "bad" -- bank to buy up the bad assets that continue to hobble the balance sheets of private-sector banks. That's what Hank Paulson and Sheila Bair suggested Friday. Obama officials-in-waiting seem to view the idea favorably.

A Bad Bank is surely better than the piecemeal, unpredictable, and opaque approach of TARP I. But in order that the Bad Bank not turn into another giant taxpayer-financed boondoggle for the benefit of shareholders, creditors, executives, traders, and directors of the banks that got us into this mess in the first place, any Bad Bank purchase of their toxic assets ought to carry conditions similar to the ones I suggested recently for dispensing TARP II funds.

Until the taxpayer-financed Bad Bank has recouped the costs of these purchases through selling the toxic assets in the open market, private-sector banks that benefit from this form of taxpayer relief must (1) refrain from issuing dividends, purchasing other companies, or paying off creditors; (2) compensate their executives, traders, or directors no more than 10 percent of what they received in 2007; (3) be reimbursed by their executives, traders, and directors 50 percent of whatever amounts they were compensated in 2005, 2006, 2007, and 2008 -- compensation which was, after all, based on false premises and fraudulent assertions, and on balance sheets that hid the true extent of these banks' risks and liabilities; and (4) commit at least 90 percent of their remaining capital to new bank loans.