Yes but the article also states that credit is tight because banks are hoarding capital until the end of the quarter- which ends today. So in hindsight, was the we gotta have the $700b NOW plan an attempt to help some of Paulson's buddies this quarter? Or have we just postponed financial armageddon another quarter?

"Deprive them of that cushion, and an ordinary recession becomes something far worse."

Which is the exact starting point of the bailout rationale.

It wasn't always so, but credit is now the oil in the engine. It disappears, your engine is gonna seize up. No two ways about it.

The banks are hoarding credit for the end of the quarter, because every quarter the reporting rules force them to own up to some of the toxic waste they are holding.

Things aren't going to get any better until they've owned up to all the toxic waste. Then we'll know where we are and LIBOR and the spread will stabilise.

Problem is, no-one is sure how long that process will take. Best guess given the amount of toxic waste is that absent some kind of government action to hurry the toxic own up along, it's going to take another 3 quarters.

To which all I can really say is: ouch.

Your points on this today have been quite excellent. People do need to remember that we really could be facing an economic catastrophe, and even if you were against the bill, yesterday's 'victory' should still be cause for pause not for dancing in the streets celebration.

But, I think that Greenwald has discussed this in the best way. This is a bill that we cannot support, even if it's better than no bill. There are two analogies that I can think of one is a legal analogy, if you have a legal proceeding in which evidence is withheld and tampered with, confessions extracted using brutal interrogation and judge and jury bribed and bullied, then you cannot not accept a conviction even though the accused may be guilty. Corruption of the system makes guilt impossible to determine and allowing such a compromised conviction to stand is far worse than letting a guilty individual go free.

Or, there is the familiar formulation about suspending one’s liberties in favor of dictatorship for the sake of avoiding social upheaval. In both cases the integrity of the system is more important than the individual outcomes, which in any case have been compromised with the corruption of the system.

That is what we have now with bill that has been prepared by Democrats for passage. The conflict of interests, one-sidedness of advance taken, exclusion of voices that have been right about the current problem in the past, lack of good faith negotiating, deceits, past incompetence and breathtaking centralization of monetary power, all make this a bill that cannot be supported even though it may be a solution to the national crisis. The precedent that this bill makes is far more damaging than the economic crisis it seeks to avert.

So, I keep hearing that the problem is that if we don't bail out the big traffickers in mortgage-backed securities, our "commercial paper" markets will lock up. Wouldn't a better bailout just do something to intervene DIRECTLY in commercial paper transactions?

The CP did start to lock up when we started seeing runs on Money Market Funds, who manage some $3.5 trillion. 'Managing' money-market funds means loaning money into the commercial-paper market. Runs from money markets to treasuries mean withdrawing those loans, not to return. (This is why the Treasury already invented their temporary FDIC-for-MMFs -- to forestall more runs.) Long story short, allowing runs to continue and buying overnight paper into the Treasury is not a solution. Restoring confidence in the system is the solution, and that requires, among other things, recapitalizing creaky financial intermediaries.

Whether this bill was the thing (I would have held my nose and voted 'yes'), something has to be done. The problem isn't individual credit. By the time the system is that far gone, it's over. The problem is locked-up credit markets driving us from what already looks like the beginning of a pretty ugly recession into something much, much more dangerous.

Even if the chances of another Depression are one in ten, it's worth a lot of government intervention to reduce those chances to one in a hundred.

Credit isn't an asset. People have been treating as such for along time now, and that's been fueling the economy. As bad as things are now, they will get better. But it will never be the way it is now.

How do you know you're not just drinking the koolaid?

So far, credit to actual people doesn't seem to be changing so much. http://krugman.blogs.nytimes.com/2008/09/30/death-by-plastic/

And the stock market does't really reflect the state of credit... http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html

..because pace your credit card offers (a lagging indicator, of course), the banking system is broken right now. Borrowings from the Fed as percentage of GDP are at highs not seen since the early 1930s: http://research.stlouisfed.org/fred2/series/BORROW

As a result, this is precisely the wrong time to be anticapitalist, much though I sympathize. Broken banking systems are substantially worse for regular, nonbanker folks than they are for bankers. This is the time to rescue capital markets so nothing worse happens. You can build the new society in the shell of the old -- again, a view of which I am rather fond -- later.