I have a real problem with the government attempting to keep our financial system propped up, because I don’t think it is possible. I believe that the mainstream understanding of financial crises is wrong on many crucial levels, so attempts to solve the problem won’t work, but even more to the point, traditional analysis suggests we have to spend so much that I don’t think we will be able to float that much debt. It is way past time to stop throwing trillions trying to keep the system from failing, and instead spending hundreds of billions on create distribution and production systems that will prevent mass misery when things do come crashing down.

That said, even if you don’t agree that we should be resigned to another Depression, the way that the government is trying to prop up the financial system is ludicrous. I hope that this report is wrong or at least incomplete. If the government is going to buy massive amounts of bad debt, there is only one route: soft nationalization. The banks have messed up so much that without help they will fail, but if the government is going to assume all the risk, it should assume all the rewards as well. There is a so called “Swedish Solution” (gee that sounds so ominous but humorous) where their government forced the banks to write down the bad debt, then recapitalized them but took a controlling interest and installed new leadership. As profit flowed back to the government, they gradually lost more and more of a stake, until eventually the banks were completely private again. I have my doubts that this will work here (specifically I believe our problem is larger and they benefited from the roaring nineties, whereas now we’re going to see global contraction) but what we are doing is merely giving away hundreds of billions that gets turned into bonuses and dividends, and does nothing to solve our problems. Let’s call it what it is — organized theft — and the side effect is that large investors are no longer trying to use capital productively, but just trying to preguess government moves for profit.

Obama and Congress have to decide between two awful choices, but we need to make sure he doesn’t continue the status quo, which is the worst.