Call Ghostbusters

The latest hot news is that the banks may close, as they did in the Great Depression.  About a 30% chance that will happen and happen without warning.  In the US, the fight is on between falling into an increasingly serious financial and economic crisis, and resistance in the US to the kind of sharp decline now taking place in Europe and Asia.  That resistance can be seen in the stock markets.  They drop and then recover over and over again. 

Does this mean that our national body is strong enough to fight this bug off, or are we just trying to look healthy as the fever rises?  Who knows?  I kind of like David Ignatius' take on the situation.  He thinks of the crisis as "a horror movie called 'Toxic Waste.'"

There are deadly creatures hiding in the interstices of the financial system. At first, it looks as if these gremlins are just in "subprime" loans, but it turns out they're everywhere. They started by eating Lehman Bros. Now they're eating Citigroup. . . . They're eating Bank of America. . . . Eeeek!

As many of our best economists are saying, Ignatius and Eugene Ludwig, a former comptroller, agree that this is not the time to pull our punches.

Overdo it now, when it matters: To get the system's natural antibodies working again, stimulate the economy, not just with the planned $850 billion in new spending but with up to $2 trillion, if necessary. Where current financial rules are making the crisis worse, change them.

And most of all, get that toxic waste into a big holding tank (which in my movie will be lined with Kryptonite). Suck the nasties out of the private banking system and funnel them into a government-run structure where they can be slowly decontaminated. It's not a new idea: During the savings-and-loan crisis, this detox facility was called the Resolution Trust Corp. Now, as a shorthand, people are just calling it the "Bad Bank." By whatever name, it's time to create it.

Bad bank!  Trillions of taxpayer dollars!  Republicans standing up in Congress and shaking their fists at tax-and-spend Democrats.  But too many wise heads disagree with any counsel of restraint at this point and I'm on their side.  More than anything, there is something revolting about watching Republicans getting all huffy when their recently departed leader blew at least $4 trillion on nasty, brutish and long wars.

It was Republican fiscal policy, starting during the  presidency of Ronald Reagan, which has brought the financial system to its knees.  From Reagan onward (not excluding Bill Clinton), the notion that the "free" market knows best was our mantra.  Of course we know now that the market wasn't free and it clearly doesn't know best. 

We need to consider two nuclear options:  one has to do with making sure the system gets enough help to recover, and the other has to do with shutting down the filibuster in the Senate.  Neither is attractive or painless.  But toxic waste dump the new administration has inherited is enormous and it's largely Republican waste.  The policies of free marketers failed.   The rest of the country -- including Democrats in Congress -- have been handed the shovels to deal with it.  Meanwhile, keep Republicans on a leash until they learn to behave.