Your criticism of how the $350 billion of the way President Bush’s $700 billion bailout plan was used is certainly warranted. That criticism should have been directed towards the Treasury Department and the Fed.

The infamous three-page document which became the first bailout is called the Troubled-Assets Relief Program. It was sold in Congress (with significant amounts of pork) as a way to simultaneously stabilize the US banking system and end the forclosure crisis.

Under the plan, the Treasury Department was to buy all of bank’s illiquid assets. This would have effectively cleared their books of the defaulting securitized debt and made the US government the debtor for all of the scandalous loans sold over the last 10-20 years. It sounded pretty solid at the time

Well, credit around the world locked up. Odd and scary things began happening. Iceland’s (!) banking system went belly up. Paulson and Bernanke, with a brand new shiny $350 billion, decided banks needed to be saved, not American homeowners. So that is how we ended up where we are. As we saw on inauguration day, the market tanked on more credit fears. The $350 billion was, as you so eloquently put it, “a band-aid to [try] and stop arterial bleeding.”

Job layoffs across service industries are unavoidable. Just as Wall Street leveraged money at 40:1, perceived need for financial advisers, analysts, media relations folks, accountants and so forth, was artificially inflated.

Something needs to be done to put these service-industry folks back to work but something also needs to be done to prop up consumer demand so companies like Microsoft and Linens ‘n Things can stay in business. Call it trickle middle but the US economy has to realign itself with reality in order to find a way out of this mess. Reality Bites.

Insightful post that has been on nearly everyone’s mind lately, especially here in D.C. It’s interesting that you bring up the high level CEOs taking pay cuts - I know Jet Blue’s CEO (and others) did this last year, and I wonder what the effect was on the company’s bottom line. It certainly boosted employee morale, and in a time like this, I think that’s almost as important as a fiscal improvement. Clearly a step in the right direction, but will more companies follow this example in 2009? They might have to.

What will be fascinating to watch is how the new presidential administration resolves this issue. I have no idea what tactics they will come up with to “stimulate” the economy, but I hope new ones that might actually work are presented on the floor. If a $1,500 personal check or a $350 billion bailout doesn’t work, what will?