This assumption that home prices are so highly over-priced seems another way of saying we are stuck in the trough a long time. Perhaps. But I can make an argument that we are not. And what about the number people (including myself) meanwhile refinancing as a result of a drop in rates?

What exactly is the argument that we are not stuck in the trough - is this fact-based exuberance or wishful thinking? I'm refinancing, too, but like a lot of people I'm not going to be spending the resultant savings. And how long could a refinancing-spurred "recovery" last anyway? Are you seriously suggesting refinancing is going to jumpstart the economy?

The "innocent civilians" may be losing their pensions in this fairness. Why is this more tolerable than tax-payers temporarily leveraging the value of assets while the economy recovers (or at least that is the bet).

You're right that ordinary folk own bank shares and bonds through their retirement plans, and would suffer to some additional degree beyond the haircut they've already taken. But what I continue to wonder is: if betting on economic recovery isn't a fool's game, why can't private capital do the heavy lifting on its own? I sense a sales pitch here, not a credible economic forecast.

Sounds so simple. But what happens to the management of these institutions while all this partitioning, cutting, liquidation, etc., is going on? Who is doing this once the whole institution fails and the owners completely wiped out? Washington Mutual was one bank, which was taken over by another. What bank will just take over Citi and Bank of America?

Joevan covered a lot of this already. Why is the idea of a receivership so terrifying here, when the financial community has calmly accepted an unprecedented rash of bankruptcies in other industries?

The fear really sounds more like a threat - "if the government takes these banks over, even temporarily, everybody who knows anything will walk out and never come back." Are you suggesting that capital will in effect go on strike if they don't get their way via PPIP?

Long-term sustainable growth may be "boring", but after spending the last few years riding on a rickety roller coaster without safety bars, we should realize it's the best we can realistically hope for.

2) I think you answered your own question: "just glorified salespeople with stunning commissions thanks to the sheer size of deals they have been rolling" is a fair assessment of the average financial CEO (they didn't originate complex derivatives, and in many cases simply allowed division managers to run wild with them). As Ptroub points out, there are plenty of financial professionals at all levels looking for work right now - a shortage of help shouldn't be a concern in any restructuring.

While it's obvious proprietary contracts need to be carefully unwound, it's unclear that financial institutions will need to continue producing opaque instruments with high profit margins or volume but with uncertain levels of risk. Banks should only sell products that risk managers and rating agencies can independently assess (unless they are partnerships where the partners take on the bulk of the risk).

Excessively complicated derivatives and insurance contracts aren't a requirement of our "wired" economy, any more than an insanely busy, unintuitive interface is necessary to a complex computer application. There are straightforward alternatives. They aren't as profitable, but that's something banks are going to have to live with for the sake of the rest of us.

Finally, I have to object to the constant use of the term "nationalization", as opposed to "restructuring" or "temporary oversight". As I understand it, the alternative to PPIP is to reduce those banks too large to fail to less dangerous size, clean house, and then set them free in the private sector, to go forth and sin no more. No one is talking about bureaucrats running things, or bank professionals being required to work for Uncle Sam forever.

"Nationalization" is a misleading frame opponents of restructuring are using to cloud the issue.

I'll try to restate my point for greater simplicity and clarity: because the finance industry does what it does - allocate capital - it is not like fishing or publishing. Its smooth functioning and proper management of risk is key to the wellbeing of the entire global economy. Precisely for that reason, its behavior needs to be closely monitored and regulated. The need for such constant vigilance isn't obvious when the market is thriving. These days, after all the revelations about blatant recklessness,violations of fiduciary duty, gross mismanagement, even outright fraud, it's beyond me how anyone can continue to defend a doctrinaire free market, anything goes approach to finance.

Radical laissez faire philosophy dominated the economy in the last half of the 19th century. If monopolies and price-fixing, blatant insider dealing, outright purchase of legislators, and grotesque abuses of employees including minors is your idea of the way an economy should work, you're in a distinct minority.

As for your big picture, I am trying to bring it into focus, but to me it seems simplistic. I get you hate "government control" with a passion. But no one is seriously suggesting the government run the finance industry, so this is just a straw man.

What you really appear to be advocating is no role whatsoever for government in a modern economy. I share your distrust of government - elected and appointed officials need to be monitored, too. We have elections to keep them in check.

But I distrust power generally, not just its formal political embodiment. I really don't get why someone so skeptical about Washington seems to ignore all the evidence that Wall Street's upper echelon is also self-serving, abusive and dangerous if left to their own devices.

As for making this "political" - hell, if finance is the allocation of capital, politics is about the allocation of power. Both are incredibly important functions in a capitalist democracy. Both need checks and balances on abuses and corruption that impact everyone.

When it comes to finance, I see government as one of those checks. You'd rather trust to the market. That's a basic difference of opinion that neither one of us is likely to change anytime soon.

But if you can point to evidence suggesting the market will heal itself, or have a non-governmental solution that accomplishes the same goal as stringent federal oversight, I'm willing to think on it.

Lalo -

Ah, lalo, lalo, lalo.

The banking industry hasn't been doing anything differently than any other industry - lobbying to protect their interests and exploiting opportunities for profit when they see them. They are victims of the catastrophy just as everyone else. Those who committed crimes should be prosecuted, of course, but it's silly to punish an industry simply for the fact the bubble happened on their territory. It could have been construction, coal mining, fishing and publishing in their place.

Lalo,I'm going to have to ask you to back up what you're saying here about industry equivalence.

What is the "fishing" or "publishing" equivalent of credit default swaps? 30 to 1 leverage? Specially tailored legislative reduction of oversight and regulation? (Do you worry about the fish at Ralphs being fresh because the salmon lobby did away with expiration dates?) Treasury and taxpayer bailouts? Credit market seizures? Does Starkist Tuna or Vanity Fair have the kind of proprietary investment in a cabinet-level post that Goldman does at Treasury?

You keep missing what's unique about the banking and securities industry - it controls the allocation of the vast majority of capital in this country. This means that 1) its actions disproportionately affect the availability of the economy's lifeblood to all industries (not to mention to everybody else from countries to individuals) and 2) its recklessness leads to systemic, not just localized contagion. Do you have more to offer on this point than to just keep repeating "everybody does it", as if that's the magic "get out of jail free" card? It would be nice to hear something in the way of an argument.

- Wall Street is evil
- Wall Street has undue influence on DC
- Banks need to be nationalized
- Argentina and other banana republics been there done that

Seriously, that all you got out of Johnson's detailed comparison of the dynamics at play in prior emerging market meltdowns and their unsettling parallels to our own? Where exactly does he mention the "evil" of Wall Street? The restructuring and temporary receivership he proposes is hardly "nationalization", though I know that's a popular scare-phrase now, so you couldn't resist throwing it in. He also points out that countries end up with various versions of a solution - they just all have to get serious about dealing with powerful, self-serving elites in order to do this.

That package, of course, includes an arbitrary limit on the size of a bank - fantastical and almost certainly unconstitutional idea which does exactly NOTHING to solve the problem of Wall Street's grip on DC.

Corporation are artificial creatures of the law. If you can find the article or amendment that would prevent restricting bank size - and the 100-year-plus existence of anti-trust legislation would argue to the contrary - please enlighten us.

I understand that Johnson is introducing the idea of cozy Wall Street to the american public. The core of this idea is ideological in nature (and I have no problem with that). My issue with his article is that he is using this "coziness" as the main reason for the current crisis. To be completely frank - I find this irresponsible because the implied solution consists of ideology-driven action, which is almost always ineffective.

I'm a little unclear - are you denying the obvious parallels that Johnson points out, or calling him irresponsible for pointing them out? And if his analysis is correct, are the actions they suggest "ideology-driven", or just appropriate and pragmatic?

You leaving me wondering: what ideology - what secret political agenda - are these former IMF officials pimping for? Are you saying these former ubercapitalist point men are biased against free market solutions and are now advocating action based on some covert conversion to (national) socialism?

Obviously courses of action proceed from points of view, and every point of view has some kind of intellectual underpinning. Accusing an opponent of being "ideological" just because they point out uncomfortable truths or you disagree with them suggests you're runing low on ammunition.

I also think that Obama administration should create a round table of top economists with different view and charge them to isolate what causes a bubble. This has to be ideology-free, bi-partisan and comprehensive. Then regulatory action is needed to address this specific conditions.

What exactly would an "ideology-free" round table or discussion be like, especially one that was "bi-partisan"? Doesn't partisan mean "favoring or advocating a particular position"? So wouldn't a "bipartisan" discussion necessarily include an ideological butting of heads? (Not to mention an unnecessarily limited dialog involving just two viewpoints.)

But why wait for Obama to get people together? There is a very free-wheeling discussion going on right now about the relative merits of PPIP and temporary receivership/restructuring. Johnson and Lachman add substantively to that ongoing debate.

Maybe you can, too. If you do "think several factors collieded to create conditions for the bubble to occur", I'd love to hear what you think they are and what solution your analysis points to.

Lalo - first - and this may just be me venting at a netiquette faux pas that chaps my hide - who are you to make any kind of demeaning blanket judgement about the emotional sources of my opinions, beside what I freely admit myself? At the time I read the article about the Ferrarri-driving trader, I was resentful of him getting something for nothing. So what? That seems like a normal human reaction and a fair macroeconomic judgement. If he had been beating his dog, it would have upset me, too - would you have opined that I simply envied him his pet ownership and I should go out and get my own dog?

I could assume that your response is based solely on your fear that loophole-closing congressmen and pesky do-gooders are going to take away your golden opportunity to exploit the dim rabble. But I don't.

I want to encourage a reasoned exchange of ideas, so the emotional substratum to anyone's opinion doesn't matter, if the mental substance is there.

So let's take a look at yours, shall we?

Stock traders make their money doing trades...They don't do anything illegal or morally unacceptable.

Ok. So far, I agree with you, though I think we need the uptick rule, I'm not thrilled about things like triple-leveraged ETF's, and I could do without volatility-pumping day traders. My point wasn't about the inherent evil or merit of one particular aspect or function of the financial services industry. It was that performance-based compensation, as it is commonly understood in other industries and professions, often doesn't seem to apply in its Alice in Wonderland, seedy carnival atmosphere.

Secondly, 12% for a broker is outstanding performance, regardless of an index, because it's based on individual stocks.

For a stock trader to do as well as an index with his own trading philosophy and proprietary basket of stocks may not be easy, but degree of difficulty doesn't render it a service with an economic value. If you want that level of performance at a reasonable price, you buy the index. Cheap. You don't hire a guy and give him Lamborghini money.

The reason financial services became such a critical part of economy is because of the huge amount of capital it generates - for the fucking economy and therefore all our benefit.

That huge amount of capital, Lalo - could you help me find it? The last I looked, households had lost about $15 Trillion in asset value since 2007.

Financial services, properly managed, take existing capital and make it grow. Cowboy financiers take existing capital and turn it into chips for use in their own privately run casino, then blame the electrician when there's a run on the bank and the lights go out.

But then again, they meant well, right? Just socking away those fees and commissions for the good of us all and the fucking - not, wait, I think you meant fucked - economy.

But I find it hard to believe that you're honest when you imply that an industry - any industry whatsoever - should have some kind of morality.

Have you ever heard of a handshake deal, Lalo? I've had one with the guy I work for for 25 years. You know what that's based on? A common understanding of our mutual obligations and responsibilities.

It's also known as morality. Other people in all sorts of industries and professions practice it. It's actually quite useful to be able to trust the people you deal with. If you've never had that experience, I truly feel sorry for you and the world-view it seems to have left you with.

You might argue that industries as a whole still shouldn't have to limit their profit-seeking in any way inside the law. I won't get into that debate with you, though you'd be surprised who in the past has advocated moral restraint on the part of businessmen. Herbert Hoover, for one. (If you do a little reading, you'll be surprised to find that not every conservative icon has been a valueless dick.) And it's often useful for an industry to pull back before legislatures and the irate public take matters into their own hands - just ask the film industry about the virtues of self-regulation.

If you want something done a certain way to reinforce your particular moral principles - that's what regulations are for. Laws. Courts. Judicial process.

You know what, in this case, we agree. I don't believe in excess oversight, but when it comes to financial services, you're absolutely right. Wall Street just can't seem to behave itself. It's time to turn matters over to the lawyers.

Oh, and no - I don't expect Fox News to support Obama's health plan. As a news organization, however, it would be nice if they reported on it accurately and fairly.

But then again, even I don't believe in miracles.

But one way I think even highly gifted people fool themselves is to imagine that they do well simply because of who they are. It's natural, when you do well, to consider yourself one of the elect - you did what you were supposed to, and things just worked out the way they should, right? Thought it's funny how even the lazy and incompetent seem to take their success in stride.

As more and more formerly-successful people now realize, many complicated and fortunate circumstances have to come together to produce success. Not the same mix every time for everyone, but factors like upbringing and personal charm, social skills and where you go to school, capacity for self-awareness to the sheer dumb luck of being born who you are when and where you were, all play a part. Being talented and hard-working obviously helps, but it's no guarantee - and as any look around Washington will show you, lack of same is not necessarily a drawback, either.

On yes. And having a well- (not over-)regulated financial sector is part of the picture, too, something excessive compensation for financial services distorts. Mr. deSantis may now be in a position to appreciate this with the rest of us.

I gave amply to the Obama campaign, but the emails they continue to send me creep me out just a bit - it's less like they're communicating with me than like they're trying to enlist me in their massive cyborg army to do their bidding.