Although I'm trained in finance and economics, there's a reason why I haven't yet written about the recent happenings in our financial markets: It is an extremely complicated situation and quite frankly, it deserves more than a brief blog post.  Anyone who thinks they can distill the perfect answer to this crisis into a short post is either leaving out critical details or just doesn't know what they're talking about. 

So instead of attempting to give the ultimate answer, I will throw out a few of my random thoughts on the situation:

• Bailouts are almost always bad for markets. They distort risk-profiles and incentives, usually leading to an inefficient allocation of capital.  Large-scale inefficient allocations of capital impede economic growth and investment. As economic growth and investment slow, unemployment rises, real wages decline, and ultimately the standard of living decreases.
• The current situation seems to be one of the extreme examples where a bailout may be the best way forward.
• Just because a bailout may be the best way forward, this does not mean it's without its negatives. It's probably better to think of this bailout as better than doing nothing, but with its own large set of issues to deal with.
• A professor from my alma mater has been famously correct with his prediction of the current financial market collapse.  He's predicting hedge funds to fall next.  Here is his excellent blog.
• The current Republican administration is once again absurdly hypocritical. The Democrats have their own hypocritical moments, but at least they didn't say "We do not support government bailouts of private institutions" in their 2008 Party Platform. Why do the Republicans continue to insist that all issues are black and white?
• Despite my reluctant support for a bailout, it should not be approved in its current form. Hank Paulson should not and cannot be above the law. The current proposal allows him this provision. The actual language: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
• 700 billion dollars is not the spending limit for the proposal, it's the cap on the amount of mortgage-related assets the government can hold at any time through this act. The actual spending could potentially be closer to 1-2 trillion dollars.
• The fact that the government may make "profit" on this deal is not enough to justify it's enactment.
• The bailout proposal is shockingly short