I remain adamantly opposed to the "Emergency Economic Stabilization Act of 2008". And I'm astonished that so many who opposed the bare-bones Paulson Plan have, however begrudgingly, risen to support this proposal. Yves Smith is right that "turning Hank Paulson's three pager into a 110 page draft made for a nice fig leaf but made virtually no substantive difference." There is a bit more accountability and transparency. But, there are also huge new powers for the Federal Reserve and the SEC that weren't in the original, and were inserted with no public debate. All the rest, the equity sharing, the "installment plan", the compensation limitations are weak, and the act specifically authorizes the Treasury to overpay for assets (that is, "at the lowest price that the Secretary determines to be consistent with the purposes of this Act").

There has been so much talk of catastrophic consequences if we do not support this bail-out. What happens if we do pass the act — over the clear objections of the vast majority of Americans — and the depression still comes?

I think people are severely underestimating the depths of the crisis we are in. This is not a financial crisis about banks and commercial paper. It is not about the housing market. We are in an economic crisis, because America's productive capacity is deeply out of kilter with our habits of consumption. No amount of financial legerdemain can fix that. We have to actually produce the goods and services we want to consume, or else produce current goods and services that we can trade for what we consume. Relying on the mysteries of finance to square the circle has brought us low. At best, the proposed bail-out might buy us some time to fix the underlying economics before the pain kicks in. At worst, the pain will kick in anyway, but we'll have even less flexibility than we have now to address the real problems.

Suppose we pass the "Emergency Economic Stabilization Act of 2008", and a depression comes anyway, and we cannot raise taxes (blood, turnips, all of that), and we cannot borrow from abroad (because our paymasters have tired of us). Sure, the Federal Reserve will print money, because the debt must be paid and the government must continue, and in a depression many prices will fall regardless, but commodities and imports will grow dear. We will know then that we want to build factories, for all the televisions and computers that used to be cheap from Asia, but that can no longer be bought with debauched greenbacks. But we won't have the capital.

What will we say, in those dark days, when someone comes along and blames the bankers? It was the bankers, after all, who "intermediated" our vast current account deficit, who found ways of accepting goods and producing debt despite our incapacity to repay, and who enriched themselves by doing so. And then these self-same bankers threatened us with armageddon unless we paid them hundreds of billions of dollars, back when dollars could still buy steel and cement and machinery. We paid the ransom, but the hostage died anyway. How will Secretary Paulson answer their charge?

Suddenly we will realize the cost of putting expedience before even the thinnest veneer of justice. Because in the end, Secretary Paulson will answer these charges with a locked gate and an exception to the Posse Comitatus Act. An economic depression will bring temptations to violence and radicalism. And a lot of people will look back on this decade, right up to and through the "Emergency Economic Stabilization Act of 2008", and feel with some justice that they were royally screwed.

Now, in a deep downturn, scapegoats will be found no matter what. Maybe we really have nothing to lose by passing this badly flawed proposal, since it might prevent a depression and if not we're all toast anyway. But, you know what? While we still can borrow valuable dollars, we could use that 700B to build infrastructure that might make the economic facts of a depression less severe. And, if we insisted that the mighty bankers actually fall now, actually take the hit that their own ideology demands of them, that just might blunt the sense that we are "us" and "them", rather than a nation with a common struggle, when it all hits the fan. Maybe the choice we are really making here is not about financial and monetary arcana, but a choice between civic peace and civil war.

Obviously this is speculative, and alarmist, while the crises in the credit markets are acute, real, and tangible. But we really could nationalize failing banks before they take down the credit markets, while bailing out senior creditors. It has been done. The Federal Reserve or the Treasury could buy high quality commercial paper if the money markets go on strike. (That's much less risky than buying frozen mortgage assets.) We really could invest in productive infrastructure, rather than in claims on already built subdivisions. We do have other choices, besides starting the depression tomorrow or giving Secretary Paulson what he wants.

The Paulson Plan is now the easy out. It has a lot of momentum behind it. It feels safe. But it is not guaranteed to work even in the short run, and does not address the substance of our economic problems at all. Much of the public perceives the plan as at best a kind of ransom and at worst a kind of theft. The plan might buy us enough time to put our economic house in order, in which case it would have been well worth the cost. But if it doesn't work out that way, if the public is forced to swallow a bail-out that seems flamboyantly unjust and everything falls to pieces anyway, we will have painted ourselves into a very dark corner. In a genuine catastrophe, social cohesion matters more than anything. Surely, by now, we should have learned not to underestimate tail risk.