Putting the rabbit back in the hat

Chris Bray writes about one of my favorite issues: the false economy of credit (two of my better posts here and here). In his criticism of the bailout plan, he pens a classic line: "[W]e're working frantically to prop up the dying fiction."

I agree with the line but am more sanguine about the bailout package. I don't know if it's the best deal we could get and I'm a little disturbed about the capitulations Paulson has reportedly made in the prelude to injecting capital directly into the arteries of struggling banks, but I don't think we can break our credit addiction cold turkey.

We'll have to demand the next White House, the next Congress and the next generation help deliver us from derivatives and start to face the fundamental weaknesses of our economy - namely, that we consume (often using credit) what others makes. Loosening the levers of credit is not a solution to the credit crisis, because the crisis isn't that we have too little credit.

On those capitulations, here's a troubling passage from today's NYT (h/t Media Nation):

Industry executives quickly told Mr. Paulson that they liked the idea, though they warned that the Treasury should not try to squeeze out existing shareholders. They also begged Mr. Paulson not to impose tough restrictions on executive pay and golden-parachute deals for executives who are fired.

Mr. Paulson heeded those pleas. In his remarks on Friday, he carefully noted that the government would acquire only “nonvoting” shares in companies. And officials said the law lets the Treasury write most of its own restrictions on executive pay, and those restrictions can be lenient if they are applied to a set of fairly healthy companies.