The idea of specialism takes into account that there will be information asymmetry. The specialist will be able to understand more in their field than a generalist, plus the specialist will be able to make sense of more information relating to that speciality that a generalist may miss, or not understand.

That is all fine but it breaks down in democratic politics as the generalists get a say - even if indirectly - and since the majority determines who is in government, not to mention what constitutes social stability, specialism needs to walk a fine line in explaining actions to the general population. So when you see legislation that contains language like this:

Sec. 8. Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency

It is not good. Not only is it a blank check, and not only does it make no attempt to explain the treasuries actions or put it under scrutiny, it is also classic state of exception stuff; where the legislative aids the executive in subverting the doctrine of judicial review. This means law becomes politics and the judicial has to fight to maintain its relevancy. It is not good.

We are seeing subsidy after subsidy of taxpayer money being thrown to the financial sector in what is a trillion dollar wealth transfer from the American public to those that have poor business acumen. This is the worst of all worlds. The failed businesses are being propped up, the US government is buying junk at market price without equity and when everyone knows it is worth pennies ... what a failure of government.

It is like New Orleans and Katrina all over again; just this time in the financial sector and not the emergency response arm of the Administration.

We are seeing arguments that it is the end of neo-liberalism, but really it should be an argument for the end of bad governance. Apparently there were regulatory mechanisms in place to stop the over the top leveraging of the firms like Lehmann Brothers, but that was foregone - due to bad governance.

Central to this has been the loss in confidence in government.

The 700 Billion bailout failed to pass the lower and more democratic house (national character rather than federal) with those in tight electorates voting against. Despite this the fed pumped 630 Billion into the system anyway and markets still fell. The banking system is too big for one nation-state - even a hyper-power with the reserve currency - to effect. The money flows are simply too large.

It most likely means that the only way a nation-state can recapitalize failing institutions is by nationalization and taking over the assets like the US did AIG. This is not politically acceptable in the US, and rightly so, as it is considered socialism, however it leaves the other alternative that these bank fail via the free market and the remaining stronger banks and investment houses survive and expand in that environment.

This can mean economic turbulence within a voting cycle, and that means politics will get involved. Unfortunately for the US the republican party is without leadership and the White House is distrusted by Congress.

Update: The market indexes were down about 7% today. While dramatic, it will be earnt back quickly. It isn't the end of the world.

Marc Faber: "I think gold will be a relatively good investment under any kind of scenario until the US government bans the ownership of Gold in the United States. They are very good at changing the rules of the game - now banning short sales [of financial and other US equities]."

There is a loss of faith in government that seems to be spreading. For instance John Hempton: "Creditors now face confiscation of their rights by the US Government without oversight or audit or even process. ... The trust needed to make capitalism work has been removed."

And the Cunning Realist: "If all that proves insufficient, expect literally anything: national bank holidays, market shutdowns, restrictions on gold ownership, and capital controls."

It is doom and gloomish but the Bush Administration has governed on exception and as if the constitution, conventions and political mores do not apply to them. Governance has been particularly bad under the Bush Administration for a multitude of reasons; of which this capacity to act arbitrarily is a significant one.

The Bush Administration is the worst in US history in my opinion. It lacks legitimacy despite being backed by the democratic process. It is a shame, the US is a wonderfully politically spry and capable country which deserves better.

Bush has proven excellent at getting elected but he, and his administration, couldn't govern their way out of a wet paper bag.

Warren Buffet seems comfortable with the government bailouts of the investment banks. That puts him out of touch democratically. His argument is that it is not Wall Street is getting bailed out, but that the American Economy is basically destroyed unless the US Treasury provides credit. He made on argument that T-bills were 0.25% (doing this from memory so am probably wrong) which is barely better than putting money in under your mattress, consequently, the American economy is to the point of paralysis and capital collapse.

Buffet uses a lot of doomsday language like Pearl Harbor. He is open about his preference for government intervention and his confidence in Paulson.

I don't know, I do well for myself and I am concerned about the cost of living, the rising cost of health care, and having a mortgage liability in a house I am no longer living in (courtesy of divorce). I also did things the right way; I saved up 20% to put down before I bought property. I worked hard and was frugal with my money. I don't see why I should be punished just because I was personally responsible economically.

I am seeing increasing volatility in my life, and am increasingly concerned about it, yet I see people like Buffet saying give us 700 Billion. He is leveraging off my productive ability as a US taxpayer to give the US Treasury the ability to borrow at a cheap interest rate.

Democratically, and politically, Buffet is at odds with the average American experience and concerns. There is so much that is putrid about this whole thing. I am disgusted.

The Republican Party's noise machine is getting down to a theme that it was the Democrats fault, and when it wasn't the Democrats it was poor people who took loans that they couldn't afford. Both fail. The Republicans have held the executive the last seven years and controlled Congress for eleven years prior to 2006; so if this mess was to be presciently cleaned up then they had the power.

Same with the poor minorities reading of the issue. ARMs became so pervasive that they were the common mortgage type for the white collar professionals too. I know of people in my industry [software] that have two ARM mortgages on the one house, and others who have ARM mortgages and cannot refinance because they are in negative equity.

There are many culprits for this; but the main one is the Greenspan policy of making money exceptionally cheap through money printing and ignoring inflation. It is no coincidence in m opinion that this all burst at the end of Greenspan's tenure. This means there is both Republican and Democrat culpability in keeping the good times rolling with cheap money. Greenspan's tenure goes across Administrations of both parties.

The issue is that Greenspan's central policy is unchanged under Benanke:

Credit creation is the Fed's signature crisis management policy: Let a bubble inflate, then watch it burst; clean up with lots of dollar bills.

We are seeing the culmination of a failed monetary policy that has been supported by both the American political parties. No President or Congressional leader has had the courage to oppose that policy.