I can't stand listening to speeches, so I didn't listen to the President's speech tonight. But I am reading it. I've explained the President's "action" politics before, so I'm not surprised at what I've read so far. Inaction is not the answer, especially in an election year. We can't have more people losing their homes. Blah, blah, blah. But I digress.

As I started by asking: Why is anyone still listening to Paulson and Bernanke? That's the question Don A. Rich asks in an article posted at the Ludwig von Mises Institute web site.

Unlike the short-attention-span monkeys of Wall Street, the reasonable analyst will conclude that all the federal government's options for making up the difference between nominal and real values have bad implications for Wall Street.

Before moving on to a more formal analysis, the federal government is now admitting that the entire credit-generation process in the United States has collapsed. Going forward, that is bad news for the real economy — for the claims on the profit-generating capacity of the economy upon which the stock market constitutes claims. This is all bad news, not good news, for Wall Street.

More formally, there is a gap between the nominal and real value of debt instruments that across the entire credit spectrum easily exceeds $5 trillion, the risk of which the federal government has assumed.

There are three possibilities that in combination cover all the bases for possible governmental actions.

First, the federal government raises taxes to pay off the difference. That clearly isn't good news for Wall Street or the wealth-creation process.

Second, the Federal Reserve System prints enough money to prop up debt-security prices at nominal values over time, thereby bringing about equilibrium by raising the prices of everything else. A borderline hyperinflation isn't good news for Wall Street.

Third, perhaps in some instances the federal government seizes the assets of the financial industry at fire-sale prices, and therefore inflicts the loss on shareholders and private creditors in a bizarre form of monetary-policy-induced, catastrophe-driven socialism or fascism.

Well, that isn't good news for Wall Street and the wealth-generation process and, as the above scenarios cover all the possibilities, none of this is a good sign. It is a sign, rather, that we have allowed our monetary, fiscal, and regulatory authorities to lure us like lambs to the slaughter to the unwarranted socialization of the most important sector of the capitalist system.

In addition to the mis-behavior of people taking out loans they couldn't afford, lenders who lent to such people, politicians using number of home-owners as a measure of the success of their policies, among many others, pragmatism and vote-buying promises have been deadly. Coupled with the silly notion that there should not be things like recessions and depressions, these "action" politicians are embracing an expedient which ought to be unthinkable. I like to think of it as The Screw Deal.

There are alternatives to the measures the President is seeking. And I think they are far superior in many respects to the alternative offered by the President and his fellow travellers on this issue. But I'm certain they won't be implemented.

On the Blame Game, Paul Barret of BusinessWeek, contributes to the discussion, by offering his own take on "What brought down Wall Street?" It's a long article, but let me explain it this way. Just like people who ignore evacuation orders in the face of hurricanes like Ike, confident that, somehow, destruction will just blow right by them, too many people had the same sort of pipe dream financially.

The outsize appetite on Wall Street for hazardous mortgage-backed securities and even more obscure derivatives has had a lot to do with the people in the kitchen failing to understand fully what was in their recipes. All of this is painfully familiar to anyone who paid attention to past adventures with wizards who claimed their esoteric models had magically eliminated risk and uncertainty. Hedge fund Long-Term Capital Management couldn't imagine Russia defaulting on its debt, much as Lehman apparently couldn't conceive of housing prices across the country deteriorating simultaneously, followed by a paralyzing credit crunch.

For four years in the mid-1990s, LTCM boasted extraordinary profits based on supposedly flawless computer formulas devised by a team that included two Nobel laureates. But in the summer of 1998, Russian credit disintegrated, one of several concurrent global shocks that the LTCM crew had failed to factor into their algorithms. After losing more than $4 billion in a few months — in retrospect, the amount seems almost quaint — the hedge fund received a federally organized rescue, although it later shut down altogether.

Financial "rocket scientists," says Henry T. Hu, a corporate law professor at the University of Texas in Austin, have a knack for neglecting low-probability, catastrophic events. The smartest guys in the room at Enron similarly assumed away risks they didn't want to confront. "These models … work in normal circumstances but not during times of market stress, when it really matters," Hu says. "It is almost like a safety belt that only fails in a serious car crash."

When they say, "Peace and safety..." (see I Thessalonians 5.3).