Liquidating “the ones” assumes there will enough solvent institutions left to constitute a working financial system. As such, you might be overly optimistic. For instance, say MS and GS and C are “insolvent” and need to be liquidated? Do you go ahead and do that?

http://www.bloomberg.com/apps/news?pid=20601009&sid=aglWJnLh1cfs&refer=bond

yes yes.. I so agree.. As one of the comments above anonymous claims there is no normalcy left.

OK.. I say then go get our money back from the private equity folks and all the “money sitting on the sidelines”. Force the private money by some emergency legislation to fill this gap. I would guess a lot of private money was made off of the “funny money” financial system in the U.S. of the last 10 years. Extraordinary measures for extraordinary times..

If we can try to manufacture a stock market rally with a short selling ban then we can legislate and implement emergency clawbacks. Only then as an American citizen will they get my support behind this bill.

Why not finally come clean with what they know? Might it be better than the “economy is still strong” message one day that switches to the “armageddon if this bill doesn’t pass” message the next?

They seem to assume we are stupid as well. I may be, but I believe Yves, Calculated Risk, Krugman, et. al. are not.

I agree we should try to take the slow route to price discovery, but the policy makers are ignoring the voters. We’re in the information age. The standard media message making no longer applies. If they want us on board with the message, talk about it and get it in front of the voters and tell the hundreds of experts with questions why this solution is better than the Swedish style solution or the RTC solution.

There are two events out there, one of them is certain to happen, and one *might* happen.

The first is the unwinding of a good part of the current vastly over-leveraged financial system, with entails a huge amount of damage that has already been, and will continue to be done, to primarily the U.S. economy. This will happen, no matter what the U.S. or any other government tries to do. No-one has the power to stop that now. Nor should they, since this is only as bad as it is because the day of reckoning w/r to massive debt accumulation of U.S. households and companies has been put out far too long.

The second, as of now still optional, event is the complete destruction of the global financial system due to uncontrolled knock-on effects from event #1.

The second can be averted if and only if the huge corrective descent of the U.S. economy can be done as an at least semi-controlled descent – lots of small bumps on the way downward, lots of pain, but no huge implosion. If you see things that way, measures that are by all sane criteria a) inefficient and b) inane like the Paulson bailout plan might – just might – make a bit more sense. It does not matter so much how wrong it is when considered by “normal” standards, the point where normalcy can be restored in short order is long gone. The main goal is to prevent a huge systemic meltdown, and to do that one stopgap measure at a time. Afterwards, one can think about re-assembling the pieces, and it was worth it if there still is a global financial system afterwards.

Personally, I am not convinced that this is a good explanation, but the people at the helm are not unintelligent. Nor are they under-motivated to do something, because it might get very ugly for them on a very personal level if they fail. And they have much more information than anyone else, so things that might look stupid from a “normal” perspective might make a bit more sense from their viewpoint.

What do you guys think?