Don Luskin, chief investment officer at TrendMacrolytics and an economic conservative, also sees potential for an administration deal with Congress over a broad FHA refinancing bill.

Luskin thinks "it would be a mistake" for McCain to oppose such a bipartisan deal and in keeping with his centrist brand to endorse it.

Rather than a giveaway, Luskin sees the Frank and Dodd approach as a way for the government to step up to "take the risk that everyone else is too crazy to take right now."

He stressed that the approach relies on the voluntary action of mortgage lenders to reduce principal.

...[Hillary] Clinton has said she's running to be commander in chief of the economy. Her critics see the heavy hand of government in her proposals.

"She will improvise solutions that redistribute gains and losses, rewrite contracts and arbitrarily make decisions after the game has been played," Luskin said. "It's a recipe for rupturing trust in the economy."

Interesting article on the Swiss economy... I'm actually struck at how a European politician can make such statements as "There is a respect for the individual at all levels of Swiss society" and "'Anyone who still speaks in socialist rhetoric has slept through history,' he declared. 'Economic liberalism has done more to fight poverty and create jobs than any other doctrine.'" Those two statements were made by the Swiss president and former justice minister, respectively. I also loved the idea of how the Swiss federal government learned tax and regulation policy at the federal level by watching the cantons (equivalent to states here in the USA) compete for businesses and talent by modifying their own tax/regulation policy. I don't see why we don't do that here to a better extent...the federal government will collect all necessary revenue from the states based on a per capita basis or state GDP basis and each state will be allowed to collect the taxes as it sees fit. Then, the states with the best tax/regulatory environment will attract the most businesses/people and the other states will follow their lead (hopefully). Still, this was an interesting article on a mostly free, capitalistic country in the middle of socialist Europe.

...it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

...the mathematical theories used by mainstream economists are predicated on the following unscientific assumptions:

The market system is a closed circular flow between production and consumption, with no inlets or outlets.

Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.

The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system. The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.

There are no biophysical limits to the growth of market systems.

If the environmental crisis did not exist, the fact that neoclassical economic theory provides a coherent basis for managing economic activities in market systems could be viewed as sufficient justification for its widespread applications. But because the crisis does exist, this theory can no longer be regarded as useful even in pragmatic or utilitarian terms because it fails to meet what must now be viewed as a fundamental requirement of any economic theory—the extent to which this theory allows economic activities to be coordinated in environmentally responsible ways on a worldwide scale.

I've been unable to get through the full Paulson report because of business and family obligations. I feel bad, too. Imagine if I were in colonial America, and I neglected to read the broadsheets being passed around on the day our revolutionary war was won.

Hurrying to a meeting, I saw a summary of it on one of the business channels as I passed quickly by a friend's office. Under the title "Goals" it read "Under proposal, Fed to ensure market stability."

Later, I thought, "WOW. How fortunate are we to live in an age where all major political parties want to stabilize both the Earth's atmosphere and stabilize financial markets." Take THAT, global warmers! Take THAT, subprimates!

George Washington may have looked majestic on foot and horseback. John Locke certainly had a big imagination. John Adams even has his own show on HBO, but this combination of Al Gore and Henry Paulson is something...well, it's extraordinaire! That's right, it's positively French!

We have elaborate new architects and designers buzzing about government making ready. It's the time to build a new Versailles!

It's a good thing no one can stop these heroes, thought I. Most of the evil corporate lobbyists are silent, waiting to see who wins and when. Perhaps they’ve been paid off.

Surely, lurking in the shadows, there must be malcontents who simply do not understand the importance of "community." I imagine them, whispering, making their evil plans, mumbling old sentiments about “individualism vs. statism” and returning the Fed to the dull task of "sound money." Talk about 19th Century!

Chimpanzees have low coefficients of risk aversion and non-hyperbolic discounting functions:

Chimpanzees turned out to be big risk-takers, invariably tempted to go for the grand prize even if this also meant frequent disappointment. Bonobos, like humans, were strongly risk-adverse, and preferred to go for the fixed, dependable reward. The chimps' love of risk is in keeping with previous findings. Compared with bonobos, chimpanzees are more patient, waiting longer to get their hands on a delayed treat"

What's going to make it much worse, of course, is what Secretary Paulsen says very soothingly is deleveraging. In the residential real estate market alone that deleveraging could be about $12 trillion.

Robert Shiller of Yale is probably the most respected authority on real estate, he's the most respected authority on real estate, and his 40% over trendline equals $12 trillion.

Update... our correspondent "Irrational Exuberance" finds this from Browne, on the web site of the demented Peter Schiff, with whose firm Browne appears to be affiliated.

Professor Robert Shiller has determined that house prices rose in line with inflation, between 1900 and 1995, at 3.3 percent per annum. Beginning in 1996, the Greenspan property bubble drove average house prices to a position where, by 2007, they were some 40 percent above their aggregate century-long ‘trend’ value.

To “deleverage”, as Treasury Secretary Paulson so soothingly describes it, will require the squeezing out of this 40 percent of price inflation; or some $12 trillion!