In a way, we are seeing a replay of the 1980s: we are dealing with the consequences of a credit bubble as banks teeter and the economy slows down.

In today's Wall Street Journal [a paid publication], there's a great piece from some of the veterans of that era from former US Treasury Secretary Nicholas Brady, former US comptroller of the currency Eugene Ludwig, and former Fed Chairman Paul Volker.

They don't mince words. Simply put, they think the U.S. financial system is on the brink, and if action is not taken, we may see "the mother of all credit contractions."

What can be done? Interesting enough, there is a precedent: the Resolution Trust Corporation (RTC). This was a strong organization that allowed for the smooth unwinding of the S&L industry during the early 1990s.

Essentially, the RTC had full backing and a clear mandate. And when it completed its job, it actually closed down (yes, that's something that rarely happens with a federal agency).

As for the current situation, an RTC organization would be a buyer of distressed securities. Ultimately, this will encourage more trading, liquidity, and hopefully, more economic activity -- especially in the housing sector.

Unfortunately, policy makers are currently taking an ad-hoc approach, putting out one fire after another. How can this engender confidence? If anything, investors are waiting for the next financial institution to implode, which just becomes a vicious cycle.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

The Oracle of Omaha is shining a light on the presidential campaign of Barack Obama.

According to media reports, Warren Buffett is participating with Obama in a meeting about the economy along with Google Inc. (NASDAQ: GOOG) Chairman Eric Schmidt, former Treasury Secretaries Robert Rubin and Larry Summers and former Labor Secretary Bob Reich, according to CNBC. New Jersey Gov. Jon Corzine, a former Goldman Sachs Group Inc. (NYSE: GS) co-chairman, and former Federal Reserve Chairman Paul Volcker also will be at the meeting of the wisemen tomorrow. Buffett will be participating via telephone hook-up.

There is plenty to talk about given the current state of the economy and the housing market which the International Monetary Fund says shows no signs of recovery. Obama, the junior senator from Illinois, is clearly signaling not to expect much from the meeting.

``I expect some further fine-tuning of short-term policies based on what's happened over the last several months,'' Obama said in an interview with Bloomberg News.

What that means is not clear. It should surprise no one that Buffett is backing Obama. The investor has been critical of President Bush's economic policies including the repeal of the estate tax which he said would be a "terrible mistake." But that doesn't mean he agrees with all of Obama's policies either.

As CNBC notes, Buffett supported Hillary Clinton while she was running for president and disagrees with Obama's call to tax the windfall profits of oil companies and his decision to forgo public financing of his campaign. I guess the Omaha investor considers Obama to be a significant improvement over Republican John McCain.

Interesting how the greatest investor in history who Republicans tout as a champion of capitalism is as big of a Democrat as Barbra Streisand.

Seeking to change the subject from her foreign policy exaggerations, Sen. Hillary Clinton turned her attention to domestic matters, proposing a $30 billion plan to help state and local governments reduce the number of foreclosures.

Moreover, she proposed creating a "high-level emergency working group" comprised of former Federal Reserve Chairman Alan "father of the mortgage crisis" Greenspan, former Treasury Secretary Robert E. Rubin and reported Barack Obama supporter/ former Fed Chairman Paul Volcker. The New York senator thinks the world needs another government study whose recommendations will be ignored.

"As much as she focused on ways to ease the mortgage crisis, Senator Clinton also dwelled on what she called 'a crisis of confidence in our country,' and portrayed herself as the candidate best able to address the economic problems of middle-income and economically struggling families," according to The New York Times.

Voters, though, are showing a lack of confidence in her. Odds of her winning are slim and none, according to Politico and other political media. That being said, the housing crisis and high oil prices will be the top issues in the campaign. Expect a billion or so commercials on the topics between now and November.

Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.

Talk about closing the barn door after the horses are gone.

Yesterday, Treasury Secretary and former Goldman Sachs CEO Hank Paulson called for greater oversight of financial institutions in the U.S. Apparently, some bankers got a little crazy with the fancy financial instruments and now the credit markets are busted. So Paulson is calling for a new sheriff to come in and clean up the town.

But where was the sheriff when the party was really going wild? This is not the time to worry about that. As Paulson said, "This effort is not about finding excuses or scapegoats. But poor judgment and poor market practices led to mistakes by all participants." You see, everybody is equally to blame. Bankers who made millions selling AAA-rated junk bonds, brokers who flipped houses on the side, little old ladies who lost their homes -- everyone made mistakes. Now it's time to clean up the mess, no questions asked and no hard feelings.

Paul Volcker, the Fed chairman who succeeded at squashing inflation in the early 1980s, once said controlling psychology is one of the most important functions for the Fed's head.

Yesterday, the current Fed head, Ben Bernanke, left the Fed Funds rate unchanged at 5.25%, saying he is still watching for inflation. If the Fed is doing anything, it is watching inflation go down.

During the next few months, the Fed will use the weakening credit market as its vehicle to suck out any excess liquidity from the economy and crush any expectations that inflation will soon to return.

With the long bond rallying, gold pricing stable and the junk-bond market shut down, Bernanke knows he is close to being done. Another month or two of pain and he will be fighting deflation rather than inflation expectations. Then the money pump will be turned back on.