As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told [by Bernanke and Paulson] “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?_r=1&hp&oref=slogin

As to whether there is any sort of viable solution to this, it is still unclear.

“We have got to deal with the foreclosure issue,” Mr. Dodd said. “You have got to stop that hemorrhaging..If you don’t, the problem doesn’t go away. Ben Bernanke has said it over and over again. Hank Paulson recognizes it. This problem began with bad lending practices. Those are his words, not mine, and so this plan must address that or I’ll be back here in front of a bank of microphones at some point explaining the next failure.”

http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?_r=1&hp&oref=slogin

I have previously opined that any attempt by the government to either prop up inflated home prices or prevent foreclosures will be doomed to failure:

"...becuase it ignores the simple fact that present prices are totally out of whack. This is even more true now that lending standards for would-be homeowners are tightening, returning to traditional requirements for down payments, income-to-debt ratios, etc. A return to traditional lending standards neccessarily means a return to traditional pricing. Thus, even if people can manage not to default on their home loans, they still will never be able to sell their place at today's artificially inflated prices because no one can qualify to buy it, nor will the source of lending that pumped prices up to the current level any longer be there.

http://tinyurl.com/4rvdrb

We are in a vicious cycle downward. However, the government has little choice but to intervene. Indeed, as Nouriel Roubini has pointed out:

"...every financial crisis and banking crisis is resolved with some government intervention (not by markets) and such government intervention has a significant fiscal cost; that is unavoidable as the alternative – a disorderly “market” workout – would end up being more costly for the government as 1000s of banks would go bankrupt and - given deposit insurance –the fiscal cost would be much larger than the one in an orderly workout. So either way there will be a fiscal “bailout” in every banking crisis: the only issue is how to make it less costly, more fair and less inductive of moral hazard."

http://tinyurl.com/5xesoa

What we are witnessing is unprecedented. Even if we are to find a way out of it, we are looking at TRILLIONS of dollars in new government debt. And the fact is, even that may not be enough.

Backlash Over Bailouts Grows in Congress, Wall Street

"Every time they intervene, they do more harm than good," said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut, a brokerage that manages $1 billion.

Peter Boockvar, an equity strategist at Miller Tabak & Co in New York, [said]... "Unless the central bank stops interfering with market discipline, Wall Street's problems will continue...The market can get to the right price on its own,..Anything that prevents it from happening is just prolonging the inevitable."

http://www.bloomberg.com/apps/news?pid=20601109&sid=aIaOyCf.U_bU&refer=home

Zdravstvujte, Comrades!

It's a glorious new day in the USSA. The Party leadership has decided that none of those who actually caused this crisis should ever face the people's justice, or shoulder the burden for their actions, and that instead we who toil in this glorious worker's paradise should bear the full cost of their greed.

Do svidanija,

Comrade Scorpio

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

-Winston Churchill

I nominate Phil “Nation of whiners” Gramm, late of the McCain campaign:

In December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment to a government re-authorization bill that created what is now the $62 trillion market for credit default swaps (CDSs). Gramm’s “The Commodity Futures Modernization Act” freed financial institutions from oversight of their CDS transactions.

http://digg.com/2008_us_elections/How_Phil_Gramm_Helped_Create_Our_Current_Financial_Crisis

Full-Spectrum Breakdown

The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That's an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That's why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress' pathetic abdication of responsibility, assures disaster. (MORE)

http://www.counterpunch.org/whitney09202008.html