Washington Post business columnist Steven Pearlstein does not mince words: too many people just don't get it.

Moreover, yours truly is not one to alarm, and typically views 'sweeping and dramatic statements' with a journalist's skepticism and a scholar's critical review.

But when the best economists you talk to, and business executives, and others in financial and investment circles, start reaching the same conclusion, from decidedly different vantage points, the dramatic statement begins to take on more weight, becoming more compelling.

'The reality of the facts on the ground'

Further, as Pearlstein incisively points out, there are reasons why a considerable portion of the American people are not 'getting it' regarding how serious the current situation is. Politicians are more concerned about ideology, partisan posturing, and teaching people a lesson -- if you can believe that they could be so irresponsible (my astonishment added, not Pearlstein's). Financiers have been very slow to admit to greed, arrogance, and incompetence. And foreign government leaders still view the financial crisis as 'an American problem.'

But none of the above changes what Pearlstein, and what my closest economist colleagues (David H. Wang, Richard Felson, Peter Dawson, M. Chandler, and Glen Langan) all argue is "the reality of the facts on the ground," to borrow a phrase from Israel's former Prime Minister and Defense Minister Ariel Sharon. Namely, that a massive, global deleveraging is taking place, and that absent a systemic rescue/intervention by the U.S. Government, in conjunction with interventions by other governments around the world, the world risks the bursting of a credit bubble that threatens to bring down the global financial system.

The U.S. Congress' rejection of the $700 billion rescue bill generated a predictable response from private banks late Monday night. The cost of borrowing rates surged the most on record as banks were increasingly reluctant to lend to one another.

The London Interbank Offered Rate, or LIBOR, rose an astounding 431 basis points to 6.88% Monday night, Bloomberg News reported Tuesday.

Meanwhile, the Euro Interbank Offered Rate rose to a record 5.05%, reflecting cash hoarding, rising fear, and a breakdown in normal trading.

Economist David H. Wang told BloggingStocks he expects overnight interest rates to remain abnormally high until the U.S. Congress passes a rescue bill, or U.S. and international leaders find another mechanism to get bad assets out of the financial system.

"There's plenty of liquidity in the system. The problem is no one is lending to one another, and that's fear, basically. Until we implement policies to reduce and eliminate fear, the fear problem is going to grow and there will be more bank failures and other failures," Wang said. "There is no end in sight for this crisis until the psychology has been changed."

New York Times Chief Financial Correspondent and Columnist Floyd Norris, appearing on the "Charlie Rose" talk show Monday night on PBS, offered an insight that sort of summed up the financial crisis, the need for a rescue bill, and the reason a considerable portion of the American public doesn't like the rescue package.

Floyd Norris said: "At times it does appear that Wall Street is saying 'Bail us out or the U.S. economy is ruined.' And, if you're a citizen of the U.S., it's perfectly normal to be upset and angered by that. The problem is, what Wall Street is saying is true."

No time for perfection

The rescue bill, even the expected, revised rescue bill by Congress, will not be perfect. And yes, it will help some on Wall Street, including (unfairly) those who 'gamed' the system, or whose business mistakes, dubious securitization frameworks, or just plain greed helped create the crisis in the first place. But the nation does not have the luxury of taking six months to compose and pass a 'perfect' bill. The nation needs a rescue package, imperfect though it may be, to stabilize the financial system. And it needs it now.

Should you, the typical investor be upset about that? Sure, it's o.k. and it's a natural response to be upset, but don't let that emotion lead you to believe the nation or the financial system would be better off without a rescue bill; it won't be. And it's not possible to prevent Wall Street institutions from being involved in the solution -- at this time-pressured, critical juncture, they have to be. As The Times' Floyd Norris noted, Wall Street knows it, we know it, everyone knows it. So accept it, and move forward with the necessary work of getting a rescue plan in place.

By almost all accounts, the defeat of the bailout / rescue bill stunned those both inside the beltway, on Wall Street, and across the nation.

Many political analysts projected that the bill would be approved by the U.S. House of Representatives by about a 80-100 vote margin. The reality: bill defeated, 228-205 and the stock market plunged a big seven zero zero and more.

Public policy analysts, professional and otherwise, will spend ample time investigating the reasons why the bill failed, but in a crisis such as this one, congressional leaders, save for reviewing their mistakes, do not have time for the stuff of graduate seminars in public policy: they need to get a rescue bill passed.

Now what?

Well first, don't panic. As George Bailey (Jimmy Stewart) said during the bank run on the the Bailey Building & Loan in the movie, It's A Wonderful Life, "Now just remember that this thing isn't as black as it appears. Now, we can get through this thing all right. But we've, we've got to stick together."

Few economists / analysts would deny that the financial crisis is so complex, with numerous casual factors, that there's more than enough blame to go around: no one party can or should be seen as 'the culprit.' Moreover, what's paramount now is to identify what works, i.e. what helps solve the crisis, and implement it.

The U.S. Congress' bailout / rescue bill (pdf) is one tool: it will help. If it goes reasonably according to plan, the U.S. Treasury, and the companion agencies the rescue creates, will slowly remove distressed / bad assets from the financial system and in the process would both stabilize the credit markets, and equally important, restore confidence in the financial system.

Another tool: mortgage help in the form of refinanced mortgages for homeowners having trouble paying their mortgage / nearing default.

Economist David H. Wang said Congressional Democrats were unsuccessful in their effort to get U.S. bankruptcy laws amended so that judges could adjust the terms of mortgages -- Congressional Republicans were adamantly opposed to it -- but the bailout / rescue package does authorize the U.S. Government to further assist homeowners who face mortgage defaults.

The dollar rose early Monday against the euro, pound and yen, but for all the wrong reasons -- a belief that more banks in the U.K. and Europe will face pressure and Europe's economy will slow further.

The dollar rose almost 2 cents versus the euro to $1.4367 and 3 cents versus the British pound to $1.8035. The dollar also rose about one-quarter yen to 106.25 versus the Japan's yen.

Currency Trader Andrew Resnick said the dollar's merely modest rise against the yen is the telling indicator in this currency market. Typically, a dollar rally would spark a large move up versus the yen as well, not just a minor increase. The fact that it hasn't indicates that institutional investors are paring-back their carry trades on concern the U.S. Congress' $700 bailout / rescue bill may not be enough to check the financial crisis, leading to slower growth in Europe, he said.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) such as Japan [the yen], and buy assets in a country where returns are higher. The investment can take many forms including stocks, bonds, funds, or even the higher-interest currency itself, such as the British pound.

Metaphors sometimes oversimplify, but think of the U.S. Congress' 2008 bailout bill (pdf) as a long-overdue oil change for the U.S. economy.

Still, as any driver knows, an oil change is not enough to keep a car running well. You need to have it tuned, and keep all of its engine, transmission and related systems maintained for the car to perform safely. So next up for the U.S. economy: a tuneup.

But regarding the rescue, if it goes reasonably according to plan, the U.S. Treasury, and the companion agencies the rescue creates, will slowly remove distressed / bad assets from the financial system, and in the process both stabilize the credit markets, and equally important, restore confidence in the financial system.

Of course, there's no guarantee the rescue will work as intended, but there was near unanimous agreement in economic and investment circles about what would happen without it: a freezing-up of the credit markets, contagion in stock and bond markets, panic, and a substantial reduction in the ability of companies small and large to function. In short, the worst financial panic since the stock market crash of 1929 that led to the Great Depression.

Some investors/readers -- and certainly casual observers of the stock market in towns small and large -- have been perplexed by the turn of events that has led to the current state of affairs in these United States: namely how and why does the U.S. government need to pass a $700 billion bailout/intervention bill to end a financial crisis in the U.S., possibly globally?

While numerous economic, regulatory, and behavioral factors created the conditions that formed the basis for the crisis, economist Richard Felson told BloggingStocks that the imminent failure of insurance giant American International Group (NYSE: AIG), in his view, "was the flashpoint at which both [U.S. Treasury Secretary Henry] Paulson and [U.S. Federal Reserve Chairman Ben] Bernanke realized that a case-by-case, reactive policy would not be adequate to check the building financial storm."

No AIG, massive exposure

Felson pointed out that at least a portion of hedge fund trades -- and the trades of other financial institutions -- are predicated on the assumption that mortgage-backed securities are good/have value, or, if not, that the insurance behind these securities is in force as a result of policies written by AIG. When it became clear that AIG did not have the assets/resources to pay claims, it was necessary for the U.S. government to take over AIG via a $85 billion loan from the U.S. Federal Reserve for warrants for a 79.9% stake in the company.

Could the financial crisis result in the United States losing its status as the world's financial superpower?

Indeed it could, Germany's Finance Minister Peter Steinbrueck told MarketWatch.com.

"The United States will lose its status as the superpower of the global financial system, not abruptly, but it will erode," Steinbrueck said, MarketWatch.com reported. "The global financial system will become more multi-polar."

However, Steinbrueck clarified his statement in subsequent remarks to FT.com. "When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative," Steinbrueck told FT.com. Further, Steinbrueck repeated Germany's refusal to allocate public funds to acquire distressed/bad assets, arguing that the crisis is mainly hitting the United States.

The U.S.: a decade of descent

Economist Richard Felson concurred with Steinbrueck's analysis for the most part, but added that the U.S.'s decline, more accurately described as "a descent," is not irreversible.

"Globalization has played a role, but much of the U.S.'s descent in the past decade stems for policy mistakes, basically policies that didn't and don't work. The nation cut taxes before it went to war, creating a large budget deficit. A lack of a forward-looking energy policy helped balloon the trade deficit. And inadequate investment in infrastructure, education, and basic research is depressing economic growth below what it should be," Felson said. "The latter resulted in far fewer jobs begin created in the decade than what's required, leading to all sorts of problems, including the housing sector's implosion. The result has been a weaker U.S. economy with more structural problems, and an inability to project economic power. Meanwhile, the economic power of China, Russia, India, and Brazil has increased. I don't think that's what policy makers intended at the start of the decade, but that's been the result."

Selected House Republicans said they had never agreed to a bailout deal, despite only hours earlier Bush Administration officials announcing an agreement on "fundamentals."

That segment of House Republicans, many from the party's conservative wing, say they oppose assisting Wall Street firms, which they believe made wrong business choices that led to the crisis. As an alternative, House Republicans offered a plan under which companies would buy insurance from the government, and that includes proposed tax cuts and a relaxation of government regulations.

Currency trader Andrew Resnick said the House Republicans' plan was deficient from a number of standpoints.

"Is this the way a responsible coalition behaves? You say nothing all day, then in the dead of night present a questionable plan via back-channels? Frankly, it's reckless and bizarre," Resnick said. "The House Republicans are playing with fire. Here we are trying to prevent a financial crisis from turning into a catastrophe and one political camp wants to play partisan politics. It's the height or depth of public irresponsibility."

Resnick said credit markets, already stressed by a series of financial institution and bank failures, as well as forced margin calls, could degenerate further.

"I'll tell you right now this whole [expletive] system could come crashing down if banks continue to hoard funds and a series of cascading sales starts to occur," Resnick said. "The House Republican plan also isn't credible. Few expect it to provide the liquidity necessary to keep the financial system functioning, and their tax cut proposal is just nuts. They want to increase the federal budget deficit more? With the dollar weak and after eight years of deficits?" Resnick added that he was presently flat, or had no open currency trading positions.

With the U.S. Treasury's $700 billion intervention bill -- commonly called the bailout bill -- nearing President Bush's desk for review and signature into law, a compelling question has risen in economic and taxpayer circles.

Given that the U.S taxpayer is funding the recovery, if not the bailout, of financial institutions and banks, are banks and financial institutions doing enough to show their gratitude to the people of the United States, the banking sector's lender -- and investor -- of last resort?

One standpoint argues they aren't, so says economist Richard Felson, and here's what Felson would like to see: In addition to equity stakes in each company that receives taxpayer assistance, the U.S Congress should require the company/bank to pay an annual fee to fund the administrative costs of a bank for low-income citizens and senior citizens.

The stance of currency traders as the U.S. Treasury's $700 billion bailout enters a House/Senate conference committee before floors votes and a transmittal to President Bush's desk? Stand aside, for now.

True, the dollar was holding its own Thursday at mid-day against the world's other major currencies, and the Dow was up about 250 points to 11,077 in what some called a 'euphoria rally,' but caution remains the order of the day, regarding the dollar, so says currency trader Andrew Resnick.

"There are still too many unknowns regarding the bailout bill to make an informed conclusion regarding the dollar's prospects at this juncture, so the best stance is standing aside," Resnick said. He added that he was presently flat, or had no open currency trading positions.

For the record, the dollar was slightly higher, up about one-half cent to $1.8401 versus the British pound, but down a quarter-cent to $1.4645 versus the euro. The greenback was also up about one-half yen to 106.56 versus Japan's yen.

The above moves are "statistically insignificant," given the basket of fiscal, monetary, financial sector, and economic unknowns relating to the United States economy, Resnick said.

"We won't know the dollar's fate until we know how much money the U.S. Treasury will spend, in what increments, its primary method of funding, what assets it will buy and at what prices, and how much money the [U.S.] government will have left to deal with other issues," Resnick said. "These are enormous issues, so the situation will remain clouded until we know more."

If a vote were held Thursday or Friday, the U.S. Treasury's $700 billion bailout bill would probably pass both chambers of the U.S. Congress, but by narrow margins and with a) an equity stake for U.S. taxpayers for every company that receives assistance, b) a cap on executive compensation, and c) oversight provisions.

Once the bailout work is done, should the U.S. Congress also pass a homeowners assistance bill to help more homeowners with at-risk / burdensome mortgages refinance to secure a lower interest rate?

As BloggingStocks' Jon Berr pointed out Monday, while lawmakers (and no doubt taxpayers) do not want to reward housing speculators, there's a large pool of borrowers who will be able to pay their mortgages if they can get out of high interest rate notes, and other burdensome adjustable rate mortgages, and refinance at a low, 30-year fixed rate.

While it's true the U.S. Government and taxpayers would end up subsidizing refinanced mortgages if the government receives interest that's less than it could by investing the money elsewhere, the costs of foreclosure - leading to bond defaults - leading to banking institution stress / systemic stress will undoubtedly be far greater, so says economist David H. Wang.

The U.S. Treasury's $700 billion bailout bill is winding its way through the Congress.

To say the situation is dynamic and fluid would be the understatement of the year. The Congress, led by U.S. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, and U.S. Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, is likely to propose and obtain substantial changes in the legislation, changes it believes will better protect the U.S. taxpayer and more efficiently deploy the. funds allocated.

The American people, if public opinion polls are an accurate gauge, are skeptical of the plan at best, and at worst view it as rewarding large financial institutions and other companies whose flawed practices both perpetuated and magnified the crisis.

In addition, with an election up ahead in about a month, Congress (particularly the 435 representatives and 35 senators up for re-election) will be especially sensitive to public opinion, with many not wanting to go against it for fear of being voted out of office.

Is the bailout bill a solution?

With the above as a backdrop, BloggingStocks Wednesday asked three economists, David H. Wang, Richard Felson, and Peter Dawson, for their policy recommendation.

The U.S. Federal Reserve has agreed to channel $30 billion into the global financial system by establishing temporary reciprocal currency arrangements, also called swap lines, with four more central banks, the Fed announced Wednesday.

The Fed said it established the currency exchange to address "elevated pressures" in dollar funding in the markets. The lines were established with the Reserve Bank of Australia, the Sveriges Riksbank (Sweden), the Danmarks Nationalbank (Denmark), and the Norges Bank (Norway).

The Fed's action occurs after overnight interest rates rose on concern the U.S. Treasury's proposed $700 billion bailout of the financial system will likely encounter revisions and a vote delay in the U.S. Congress.

Economist Richard Felson said he approved of the Fed and other central banks' effort to maintain both liquidity and an adequate flow of dollars in international markets.

"The swap lines will help maintain liquidity and address pressures building in the Asia Pacific region," Felson said. "Among other benefits, this will increase the amount of dollars available for money markets."

Felson added that the Fed and other central banks' goal is to maintain liquidity and "keep the credit creation process in motion." Bank concern about the ability of fellow banks to repay money has periodically led to decreased bank-to-bank lending during the financial crisis. If that tactic continues, it could eliminate a source of credit companies and others need to conduct business, restricting commercial activity.