Ways and Means to undo the current economic mess

I didn't mean to create a false impression with the post below, which was intended to be forward looking and prescriptive. I had previously commented on the need for completely rethinking the ways and means used to deal with the current failures of financial institutions; namely, the preservation of the underlying transactions and the sacrifice of the interests in side-betting derivatives. Very probably, the only way to save the likes of Citigroup and others up to their eyeballs in CDO's and CDS's, is to let them go into Chapter 11 and appoint a special master to oversee the public interest while guiding them out of bankruptcy. The goal would be to force the speculators in these side bets, which in the memorable phrase of one recent commentator I linked to are to the real economy like fantasy football to real football, to just walk away empty handed, or nearly so, while renegotiating the underlying loans and transactional securities, and preserving the existence of the institutions themselves. (While firing the top management wholesale). (See this piece by Michael Lewis piece in portfolio.com).

This, while it will no doubt rock the markets further, is preferable to the altnernative, which is, again, to watch the whole economy wash away in a sea of debt. There just isn't enough money in the world to make all these bets good, and the sooner the economic team around Obama, and the pres.-elect himself, realize it, the sooner we can start spending the huge sums of money we don't really have, but continue to borrow, to some actual effect rather than just throwing good after bad.

I don't claim to understand all this stuff, but, like many Americans, I've been trying to figure out what's gone wrong, and to understand what's needed to get out of this historic mess. The outlines not only of what went wrong but of the way forward are becoming clear to me, and to many others. Whether the new administration will end up seeing the forest for the trees is yet an open question.