John, apologies for saying so after your kind words, but we disagree. While some of our troubles are indeed the result of a ‘normal’ cyclical boom-and-bust, I think that it’s reasonable to argue that the way that the malign effects of the housing bubble were intensified by the derivatives that had helped stimulate it, transformed this crisis into something profoundly different, a mess of a magnitude that could well have brought down large pieces of our financial infrastructure with, I would add, unknowable (but probably disastrous) consequences to our politics as much as our economics. As to why that was, the answer lies in a wide range of factors ranging from the sheer scale of the problem, to catastrophic regulatory failure, to the interconnectedness of the banking (and shadow banking) system, to hamfisted government intervention in the past, to very fundamental mispricings of risk, well, I could go on…

You argue that the economic panic was generated largely by the political panic, but I see little evidence of that. The economic panic had been slouching our way for a long, long time (I wish I’d paid attention to Prof. Roubini long before I did), as the increasing agitation of the markets over the last year was revealing so clearly. You might not have agreed with the decision to rescue Bear Stearns, but it’s very obvious to me that if that firm had been allowed to go under, there would have been a panic no less, and possibly greater, than we saw in September/October, a panic that was, of course, formally triggered by the government’s decision not to bail out Lehman.

Have the administration’s actions since the collapse of Lehman made matters better or worse? On balance, I’d argue that they have made things better than they would otherwise have been, although I agree with you that some of the hesitation, doubling back, and uncertainty has certainly done its bit to hit confidence. In a way, that was inevitable (confronted with problems of such complexity there was bound to be an element of make-it-up-as-you-go-along), and in a way it reflected political realities. For example, I’d have preferrred direct equity investment in the banks from the start, but confronted by a House in which at least one GOP congressman compared TARP to Bolshevism, that was probably never doable. Perhaps too the administration had to look into the abyss befire taking such an ideologically uncomfortable step.

Finally, there’s the issue of recessions and government causation. Again we may have to disagree, but your references to the desirability (or not) of both fiat money and central banks suggest to me that that is a discussion too long for the Corner!