As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future.

Some sensible analysis of the bailout.

UPDATE: Deep thought — What if markets actually are functioning, and we just don’t like what they are saying?

Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.

This is one of the few articles that treats “toxic” waste for what it is, not loans, but structured products and derivatives, most of which is not risky any more on account of it being worthless. The bailout is a handout. You want liquidity – capitalize new banks.

Here’s an idea: capitalize a couple of new banks with clean balance sheets under a new and intelligent regulatory structure. Treat these banks as safe havens for deposits transfered in from the FDIC from other failing banks. Let everybody else fail.

Key advantages:

1. Eliminates moral hazard.
2. No secret handouts or price inflation.
3. This is a market based solution – government merely introduces new competitors.

The new banks proceed with an implicit government guarantee until things settle down. Then they can privatize (and hopefully make the government some money).

Disagree? Happen to be the Fed Chairman? Prove me wrong. Release the books for Maiden Lane.

Hey, to hear them talk, they’ll make money on the deal. Put up or shut up.

UPDATE: I just want to go on record that this entire “value-to-maturity” is nonsense. When I worked at Bear Stearns I had a chance to look at the kinds of “securities” that were kept on the books. They were residuals of residuals of residuals. Keep in mind that the last tranche to get paid in a deal is the residual. The residual of a residual is a structure where the underlying collateral is already a residual. Even a 1% drop in home prices (or a corresponding increase in foreclosures) would guarantee that these “assets” would lose all value. The “value-to-maturity” is zero. We’re looking at home price declines and foreclosure rates far more than what would be needed to eliminate all value in these assets.

Think I’m wrong? Demand that the fed open the books on Maiden Lane LLC. Lets have a public accounting of what these toxic assets really amount to.