Lately, it has been as if every lesson from a first-year graduate seminar in public policy is being played out on the national stage.

Let's underscore one point: the nation appears to be nearing a policy to deal with the financial crisis. Investors should try to keep that at the forefront. Or maybe paste it on to their computer screens at work or in their home offices, so that they can maintain a sense of perspective. Yes, it's about a year late, but there was another U.S. president in charge then: the new guy's just arrived. Moreover, if calm prevails, the nation is going to get through this difficult period, this aftermath of the decade of policy errors, the decade of descent.

In the landmark, blockbuster film "Jaws" (1975), reluctant sailor, Police Chief Martin Brody (Roy Scheider), while chumming bait, gets his first look at the great white shark that's been terrorizing Amity's shoreline community. Captain Quint (Robert Shaw) and Marine Biologist Matt Hooper (Richard Dreyfuss) are immediately struck by the shark's size.

But Chief Brody is struck by another reality. "You're gonna need a bigger boat," Brody said.

In today's environment, with the U.S. economy in a pronounced recession and credit markets still constrained, the Keyensians - - which include most Congressional Democrats - - are playing the role of Chief Brody. They know what's needed to go after that shark (the recession).

'You're gonna need a bigger stimulus.' (In this case the 'bigger stimulus' means a second stimulus package.)

Congress is sending a bill to President Obama's desk that limits banker pay. Specifically 11 pages in the 1,073-page $787 billion stimulus bill describe a provision that limits bonuses for executives at all financial institutions getting government money to a maximum of a third of their salary. And these are not cash bonuses -- instead they'll be paid in company stock that executives can't sell until the government investment has been repaid.

Citigroup (NYSE: C) CEO Vikram Pandit, volunteered to take a $1 salary until his company returns to profitability. Assuming Citi posts a loss in 2009, Pandit's maximum bonus for the year will be 33 cents -- which at today's price would amount to a tenth of a share of Citi stock.

The U.S.'s first fiscal stimulus package 'of size' since the recession's start has passed - - albeit in a modified form that decreased spending by about $140 billion over the original outline.

Further, the young President Barack Obama, like the young President John F. Kennedy, has learned that presidential honeymoons can be short inside the beltway, particularly if you have to trade policy to obtain votes both inside your party and among the loyal opposition.

Meanwhile, investors and the financial community more broader await the specifics pertaining to Obama administration's revised plan to stabilize the banking system, with the declining Dow discounting that even a successful plan will require months of systemic adjustment, and, of course, more public funds.

Financial Times columnist Martin Wolf reminds investors that, contrary to some views expressed in the United States, depressions are neither good for us, nor unavoidable.

Further, despite the recent year's many reverberations, the United States remains, Wolf argues (and the U.S. Central Intelligence Agency agrees), the world's preeminent economy in the global economic system it has created and promoted. Moreover, U.S. policy errors had much to do with the current crisis, even if aided by policy errors abroad. By extension, the healing and recovery starts in the U.S. -- with America as the leader of determined, globally-coordinated action.

The previous U.S. presidential administration preached a great deal about a 'strong dollar policy.'

Unfortunately, almost no actions practiced by the administration supported that goal.

Concerning the federal budget, a decade of deficits has really hurt the dollar's value. A $1.3 trillion tax cut in 2001 ended the balance budget era of the late 1990s, and subsequent increases in defense spending for the Iraq and Afghanistan Wars -- combined with a lack of a tax increase to pay for that additional spending -- soon led to +$200 billion budget deficits. After swelling to $300 billion, the bank bailout and related legislation would push the deficit over $500 billion, according to the Congressional Budget Office, and it's projected to top $1 trillion this year and in fiscal 2010.

As the U.S. Senate prepares to vote on an $820-$900 billion fiscal stimulus bill and send it to a House / Senate conference committee, a stark reality confronted lawmakers: the stimulus package may not be large enough.

A group led by Senate Moderate Republicans and selected Democrats cut roughly $60-80 billion from the bill, in what they believe to be wasteful spending and / or items not directly related to stimulating the economy.

Economist Richard Felson said lawmakers may find themselves staring at an economy in six months that needs another stimulus jolt, and given the two options, it's better to provide the stimulus all at once, from a GDP-impact standpoint.

New York Times columnist and Nobel Prize-winning economist Paul Krugman knows the situation facing the United States is very serious, so he doesn't mince words.

columnist and Nobel Prize-winning economist knows the situation facing the United States is very serious, so he doesn't mince words.

Krugman outlined: The housing sector has collapsed. Consumers have sharply decreased their spending, due to a declining stock market, home prices, and stagnant wages. Businesses are cutting investment. Exports, the formerly one strength of the economy, are plunging, as the recession grips emerging markets. The Fed has already cut short-term interest rates to zero. And there are signs of deflation. In sum, the U.S. economy is very close to the dreaded negative spiral that tends to feed on itself, and that could continue for a long, long time without fiscal stimulus.

Hence, the nation needs to pass the fiscal stimulus package, and if anything, the current package is too small, he argued.

The two circumstances sort of symbolize the U.S.'s decade of descent, although opinions certainly will vary on what led to them. At minimum, they don't represent the most flattering moment in the nation's history.

Money manager Bernard Madoff, if proven guilty, will have substantially hurt, if not ruined, the financial lives of hundreds of investors -- from charitable organizations to Zsa Zsa Gabor -- in a $50 billion Ponzi scheme.

Meanwhile, on the heels of President Barack Obama's $500,000 compensation cap for executives and employees who receive federal government bailout assistance, criticisms have been voiced in and around Wall Street and in think tanks, with some executives complaining that the compensation is not high enough and/or that the federal government has no right to limit how much someone can be paid.

Let us know what you think.

Now we're talking fiscal stimulus. In a move to provide stimulus and economic incentives to a sector that, arguably, needs them the most, the U.S. Senate has added to the fiscal stimulus package a tax credit for up to $15,000 for homebuyers, The New York Times reported.

Economists and public policy analysts caution that the Senate has yet to vote on the stimulus bill, and the legislation, if approved, would then have to be reconciled, via a conference committee, with the stimulus package passed by the House. Nevertheless, economist Peter Dawson still likes the direction of the February wind in Washington.

President Obama is starting to flex his leadership muscles and spend his hard-won political capital.

In remarks before House Democrats in Virginia Thursday night that sounded more like one of his successful campaign speeches that energized millions, Obama argued that the nation's economic well being requires swift approval of the roughly $900 billion fiscal stimulus package.

With the Obama administration's $500,000 executive pay cap for bailed out companies imposed, the more important and more determining question concerns how the American people respond.

Ironically, the public's reaction may hinge on how Wall Street and the broader financial community reacts.

Historically, Americans have opposed pay caps and generally looked unfavorably on government -- particularly federal government -- efforts to interfere with market-based valuations of talent / labor. In a nutshell, the public favors a minimum wage but believes "the sky's the limit" regarding compensation; if a board of directors, business partner or negotiated contract says you're worth $10 million a year in salary and bonus, then you deserve $10 million year.

Senate debate resumed Tuesday on the fiscal stimulus package, and as it did several economists offered their policy advice for the august members of the world's greatest deliberative body.

The biggest change should concern size, so says economist David H. Wang. "It's too small. A $900 billion plan is good, but the stimulus plans that most effectively increase GDP are ones that are large, and the bigger the package, the bigger bang you'll get for your buck, from a GDP standpoint," Wang said. Wang said he would add at least $300 billion in spending to the plan.

You have to appreciate the cleverness of this era's financial humor. (Note that I said, appreciate the cleverness, not love, or enjoy. That's because, depending on your perspective, the humor is either on-the-mark, or not that funny. But that is part of the subjective nature of humor.)

One joke making the rounds:

Question: What's the capital of Iceland?
Answer: $25.

Another: In the old days, banks lent money to people. These days, people lend money to banks.

New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman discusses bank capital and lending in his most recent column, and argues that the apparent likely Obama administration fix for the banking sector -- a combination of U.S. government purchase of toxic assets and guarantees against losses on other assets, each on terms favorable to the banks -- represents a lousy deal for the U.S. taxpayer, who'll end up "footing the bill for rescuing the banks."

Economists note that the U.S. recession that has mushroomed into a global recession with constrained credit and falling demand began with the rise in foreclosures in the U.S. housing sector.

Hence, ending the rise in foreclosures, while it would not mean U.S. GDP growth would immediately follow, will help put the world's largest economy on the road to recovery, many economists agree.

Further, it looks like the Obama administration is set to make a large financial commitment toward achieving that goal by allocating up to $100 billion of the TARP's second $350 billion in bailout / rescue funds for home mortgage refinances, Bloomberg News reported Tuesday.