I just wanted to make everyone aware of David Donadio’s fine op-ed which appeared in the Baltimore Sun this morning, and which we’re running on Doublethink Online as well.

Though Dave and I have our differences on the Paulson plan, I think this is as cogent and impassioned a polemic against the bailout as I’ve read anywhere else. And by calling it a polemic, I don’t mean to give it short shrift—it’s a powerful gut check for those of us more inclined to “do” something.

Megan McArdle has a great post up looking back at what went wrong and what could’ve been done differently to avert the financial crisis we find ourselves in today. Have a close read, because it’s very smart.

One thing jumps out at me in particular:

How should the Federal Reserve have dealt with the river of money flowing into American markets from central banks and savers abroad? This was the primary culprit in the credit expansion, not the Fed—indeed, that’s why the yield curve got so funny looking at the end.

I, like Megan, don’t have a concrete answer to this. I will go out on a limb, though, and say that I don’t think the Fed should directly shoulder any blame here.

The blame ought to go to those economists and policy-makers who not only failed to see how these inflows were a bad omen, but who actively argued that things could continue like this indefinitely.

Take for example this passage from Hulsmann & Surzenegger’s infamous “Dark Matter” paper from 2005:

But wait a minute. If this is such an open and shut case, why has there been no crisis yet? Why is the world willing to lend continuously to the US and to do so at such low interest rates? Why do markets not react to the wisdom that is being so generously given to them? One possibility it that the March of Folly is an inevitable feature of human hubris and it is the role of the dismal scientist to act as a modernday Jeremiah. Or maybe, there is something seriously wrong about this worldview.

Ahem.

I especially like it when they hubristically mock charges of hubris.

Over in (non-Soviet) Russia, trading was suspended yesterday after markets tumbled 17%. Some Russian reportedly said:

“It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”

I suspect this is the kind of stuff Hank Paulson and Ben Bernanke are trying to avoid with their interventions.

I understand the desire among many of my peers to complain about the taxpayer being forced to foot the bill for these sorts of things. I just suggest that, with a little imagination, one can easily conceive of a whole set of even worse outcomes if this situation is not carefully tended to.