And to quote from President Herbert Hoover's autobiography, during his administration economic policy was made by quote "the leave-it-alone liquidationists headed by my Secretary of the Treasury Mellon, who felt the government must keep its hands off the economy and let the slump liquidate itself."

We must always be aware that it is fiction, and such a fiction can never be a proof.

The point simply was and is that letting these things sort themselves out relatively quickly is an effective way for market participants to assess, correct and move on. In Japan they didn't let this happen for years.

Had the M2M provisons that communicated panic valuations not been in place here the banking system would have similarly sorted things out (as they have in short order) without the need for bailouts. As we can see, its happened in the space of months, not years.

Your comparison fails.

Separately,

"well, Bush was really a Democrat and we didn't figure it out until too late."

Neither is "well, things would have been better because failing all the failures would have invigorated the economy."

Um, er, uh........uh....odo, did you recently score a premo load of 'lumbo?

The reasoned argument about why they were wrong, and failing was safe, boils down to "well, Bush was really a Democrat and we didn't figure it out until too late." That is not a very rational economic argument.

Neither is "well, things would have been better because failing all the failures would have invigorated the economy." That is an appeal to emotion, without data.

1) "They didn't let banks that should fail, fail. They didn't let industrial corporations that should fail, fail."

2) "We have pretty much been able to sort out the banking systems assets and exposures in about 6 months. Japan farted around for years."

It seems to me you can take the no-bailout path, let them fail, per #1, but you can't turn around and claim the benefits in #2, of the bailouts.

As for Odo
“How does that alternate world turn around as fast? Surely unemployment would be deeper now, and consumer spending further down.”

Part of the decline of consumer spending and investments is their confidence in our system. Could a failure of major industries and\or bank cause a panic and hurt this confidence? Yes and that was a big reason given for the bailouts. However I think many have overstated how much panic would have ensued. I think the constant strong arming of our government and its interference with our system is causing a even greater decline in confidence than if we would have left these industries and banks corrected themselves though our capitalist system. Now the government appears to be going after small banks and grabbing even more power. Not a confidence builder.The stimulus packet may have hurt our economy more in the short and long run than letting the sytem work itself out.

The fraction of the stimulus funds spent to date are very small.

As of today's report from the Vice President, $28.5 billion of $787 billion stimulas has been spent, mostly on medical assistance to the states, which is slower than anticipated.

I don't think so. They didn't let banks that should fail, fail. They didn't let industrial corporations that should fail, fail. They drip, drip, dripped in props. And they repeatedly put in stimulus that stimulated for a bit......until it didn't. Not to meation asset collapse and demographics. Sound familiar??????

The mark to market issue is a narrow point. You can have assets that have a long term intrinsic value (a "fair market value") but in the moment have diminished "orderly liquidation" value, or "fire sale" value.....which is universally a pathetic value based upon current circumstances. Revoking mark to market simply would have avoided the fire sale valuations as the monetary system players sorted out each other's balance sheets and exposures. Said another way, it would have avoided the panic. Operating in a state of panic is not a good way to manage assets.

We have pretty much been able to sort out the banking systems assets and exposures in about 6 months. Japan farted around for years.

Odo, I think you know this. And so invoking Japan and M2M is really, really weak.

"You can assert a "deeper in the short run" recession, and imply an as-rapid recovery ... but on what basis?"

Say what? I agree with you that a more hands off approach would have necessarily made the recession deeper in the short run. After all, we'd have, for example, a bunch of laid off Chrysler workers right now. No surprise there. But that bailout has consequences for the future(financing), whether its higher taxes that can't be spent elsewhere, higher interest rates from govt borrowing that retard financed consumption expenditures, or inflationary printing of money that destroys buying power. Look, I'm a classic U of C trained guy, but I have yet to see a refutation to the notion there is no free lunch. These bailouts just kicked the problem - and the lower GDP - down the road. This of course is the way of politicians.

"How does that alternate world turn around as fast? Surely unemployment would be deeper now, and consumer spending further down."

See above. The classic logic problem with spending stimulus policy is that is substitutes stimulus today - for the benefit of economic players today - for less activity tomorrow - to the detriment of economic players tomorrow. Politically expedient, but economic witchcraft.

If you really read the critique of economists re: Japan, you will see that it was just a series of kick the can down the road avoid troubled company reality and stimulus moves......while the debt continued to pile high. And it didn't work.

Sort of like the Obama approach, eh?

This is the basic problem with arguing missing data, alternate histories. You can assert a "deeper in the short run" recession, and imply an as-rapid recovery ... but on what basis?

How does that alternate world turn around as fast? Surely unemployment would be deeper now, and consumer spending further down.

It would have been deeper, in the short run anyway, by definition. But it seems implicit in your assertion that it would be much deeper. I do not see any basis for that.

The fraction of the stimulus funds spent to date are very small. And wrt financial institutions, revoking the mark to market might have avoided the panic - and it was a panic, not a fundamental problem. I think concerns of meltdown have been overwrought from day, for political reasons.

Separately, let's partion bank bailouts for industrial company bailouts. We have a fractional banking system. Inherently fragile. And capital flows are like blood - necessary. So yes, you do what you have to do there.

But if Chrysler goes under - spare me the violins - its just not the same problem.

The smoking gun here actually was the recent prescription: taxpayers had a $5B claim wiped out; will put $6B of new money in, and get 10% of NewCo. The UAW has a $4B subordinated claim..........and walks away with 55% of NewCo.

Spare me the economic hand wringing....this was raw political payback.

We ain't in Kansas anymore.......

Please get real. Politicians that you vote for do things you don’t like all the time. How many liberals complain about the war when Dems and Reps both voted for it?

Also we usually have two choices in the end. One that spends like a drunken sailor and one who spends like a boat load of drunken sailors. Many of us complain when the Republicans spent too much so don’t tell us we can’t complain when the Democrats are running a bigger deficit in one year than Bush did in 8. Remember to that the Dems were in control of Congress for the last two years which is when the recession hit.

When people say they'll take the easy way, no bailouts, I don't think they really process all the little failures that would occur around them as a result, and how that would affect the economy and their taxes, going forward.

Oh, to the contrary, I thnk they do. But I also figure they're looking at the bailout cure to be worse than the original problem.

What the markets are indicating is that the bailouts and stimulus are not seen as going to pay off so we'll still have the problem to solve only with crushing debt this time. The administration is seen as willing to toss out the rule of law regarding finance when it suits them so default risk for the US has ticked up a few notches.

When people say they'll take the easy way, no bailouts, I don't think they really process all the little failures that would occur around them as a result, and how that would affect the economy and their taxes, going forward.

When the commercial paper market failed, healthy companies almost missed payroll. That was the thing that drove Pauslon to congress and put him down on his knees (literally).

I'd love it really if all this spending was "extra" and could have been avoided, but I'm not convinced.

This is my position.

And mine, for which I've been on record since the start.