Donald Luskin offers 3 tests for considering any bailout:

• Is it necessary?
• Will it work?
• Is it morally justifiable?

His evaluation of the current interventions against these criteria is not reassuring. Compounding this concern, recognize that risk exposure associated with other prior decisions, which may have been a reasonable decisions at the time, may be now re-evaluated in the new environment we are creating, which can amplify the present decisions further. For example, when people who run the financial firms chose to make overly optimistic assumptions and to feed their models with oversimplified data (the kind of biases that likely affect other forecasting as well), and those assumptions do not have consequences, they will continue to make them (and others may join them). When coupled with the complexity of such models (and thus their validity), decision-making which results from them should receive special scrutiny, even though they often mistakenly become the trusted means of guiding actions in the future. Maybe we should begin listening to those with creative suggestions for accountability.

Further, the dynamics of the current system allow benefits to be extracted and distributed prior to the arrival of potential risks, which fails to account properly for them. That is why the insurance aspects of this crisis are so important to understand (and yet so little understood). In insurance scenarios, we expect unmitigated risks to be covered by others not exposed to those risks; yet that assumption does not hold true given the distribution of unquantifiable risk that has become so problematic in the current crisis. Insurance may well play a role in the long-term solution (though don't forget this was the territory that AIG played, and we are now bailing them out, as well). The direction we are on is that the government is the Ultimate Insurer, and when that happens, why insure prior to that point - businesses instead will instead increase their pursuit of influence, to be at the front of the line for the next bailout. There thus may be no end to the regulators, and the further chaos they create.

The dilemna for both sides with this debate, thus, is that when either takes a position on any specifics, you have to accept both the bad and the good elements associated with that position, and there is no clear 'right answer' for going forward, given these many contributing elements. Apply pressure on the balloon here, and it pops out in another place. Developing a strategy to address the situation is thus driven by where you are in the classic clash of visions mentioned in the opening section of this article, and your resulting mental models, as much as any evidence-based analysis. For some, more regulation nearly always means a smaller economy; less regulation may mean more predictability, but slower growth (and thus higher inflation, and fewer jobs). Yet with delays between actions and consequences, the ability to understand (and thus act on) the complex interaction of effects is not as great as people think:

Due to delays in the system, it will even be a while before we can determine the net effect of interventions; in the meantime, short term effects of recent history will likely dominate the evening news for a while. It is obvious that economists are happy with Bailout, Version 2 - though I will point out that their collective views could be seen as what largely helped steer us into this mess. Banks had no choice, though, and the implications of this change on our economy in the long run are difficult to predict.

Improved access to accurate information for decision-making is key to any go-forward plan, as is carefully creating a mix of counterbalancing inflences, and introducing them gradually over time. I suspect there also may be ways of leveraging social action as well, though that will also have to be done very carefully, due to the potential for manipulation. But impatient decision makers would be prudent to review the Panic of 1873, and the consequent prolonged Long Depression which resulted from the best intentions of those times - including bank failures, industry failures, labor strife, political turmoil, and world-wide trade wars.