"Whence is that knocking?
How is't with me, when every noise appals me?
What hands are here? Ha, they pluck out mine eyes!
Will all great Neptune's ocean wash this blood
Clean from my hand? No, this my hand will rather
The multitudinous seas incarnadine,
Making the green one red."

As I said and will continue to say, since there is nothing sweeter than a word grown so bitter in your mouth that it makes your tongue cancerous - that is, to a certain degree of madman, such as LI - the bailout is perhaps the most foolish project ever mounted by a state since Darius decided to whip the sea. The figures are mounting, sweetly sweetly up into complete fantasy. Readers are urged to go see how 7.6 trillion dollars have been pledged by our lovesick Treasury and Fed - come back, SIVs of 2007! We want to light the cigars with the hundred dollar bills again!

PS – LI is thinking that there is some virus that went around the liberal blogs after the Obama victory. Instead of seizing the moment, these bloggers seem intent, suddenly, on defending the indefensible. Kevin Drum, at MOJO, posted today on the bailout, and this is what he had to say:

“Can we please stop this? Calling this a "$326 billion" bailout is crazy. It's a $20 billion capital injection plus a bunch of asset guarantees with a maximum cost of $250 billion and a probable cost in the low billions. (Possibly zero, in fact.) The capital will probably be repaid eventually, but even if it isn't it's highly unlikely that Uncle Sam is on the hook for more than $30-40 billion.

This stuff has gotten completely out of hand, with "estimates" of the bailout these days ranging from $3 trillion to $7 trillion even though the vast bulk of this sum comes in the form of loan guarantees, lending facilities, and capital injections. The government will almost certainly end up spending a lot of money rescuing the financial system (I wouldn't be surprised if the final tab comes to $1 trillion over five years, maybe $2 trillion at the outside), but it's not $7 trillion or anything close to it.”

You will notice that the figures in the second paragraph were ground out not by some devilishly clever calculation, but by the simply bloggy expedient of deciding one needs a figure that sounds reasonable, not too high and not too low. The error rate of the quick calculation is - it could be x or twice x. Wow, there's a calculation for you. And after all, a trillion is now our number of choice.

In fact, Drum’s post does bring up the question of how one figures out the payback. And that brings up the larger question: if, in fact, the financial sector shrinks 15-30 percent or more over the next few years – and that is the conservative estimate of Rogoff, Willem Buiter believes it will be more, how in the world are they going to be viable facing 7 trillion dollars in obligations? The short answer is: they won’t. Either the U.S. eats this debt or the financial sector – whoever is left standing – eats it. But this isn’t, I think, edible. In fact, this is the kind of debt that sticks in the windpipe and causes suffocation, thrashing and death.
We could, of course, have simply capitalized a national bank and used it to keep the usual channels of finance open. Hell, such a bank would be ideal for handling the non-bankruptcy/bankruptcy of GM. But that is not going to happen now. What is happening is this: we are investing 7 trillion dollars in future obligations in the hopes that the financial sector will remain the same size, or grow, in the future. Rather like investing in blacksmithing just around the time Ford came out with the Model T.