Reckonings; Trillions and Trillions

An old classmate of mine, who went on to become a Latin American finance minister, once brought his technical experts to a meeting with a U.S. Treasury official. The official was furious. ”Get your [expletive] numbers guys out of here,” he yelled — which was how the U.S.-educated technical team subsequently referred to themselves.

All of which is by way of apology for today’s column, in which I am going to be, at least a bit, a numbers guy. But then my subject is a numbers issue: how big a tax cut can a presidential candidate responsibly offer?

Of course, it depends on what the candidate plans to do about spending. Big tax cuts won’t break the budget if they go along with, say, significant reductions in Social Security and Medicare benefits. But the truth — or at least the conventional wisdom — is that post-Clintonian America has reached a sort of equilibrium, in which the median voter wants a government that is neither much bigger nor much smaller than it currently is. And assuming that it is a Bush-Gore election (despite last night’s results), both candidates will at least pretend to respect that equilibrium. How much money does that leave on the table?

If you have been reading the headlines, you probably think that the answer is, quite a lot. After all, didn’t the Congressional Budget Office just estimate that thanks to our booming economy the federal government will run a surplus over the next decade of $1.9 trillion? And doesn’t this mean that the budget can easily accommodate even the $1.3 trillion in tax cuts being proposed by George W. Bush?

No. To see why, you have to look at the, um, numbers.

The key question is, What would it mean to keep the size of government about the same as it currently is? A reasonable man — and Mr. Bush’s economists are, as I said last week, reasonable men — might guess that it means keeping ”real discretionary spending per person” more or less constant. Note the modifiers. ”Discretionary,” meaning that nobody is proposing to scale back the big-ticket entitlement programs; ”real,” because if prices rise it costs more to provide the same services; ”per person,” because more people means more need for government services, which is why a populous state like — to take a random example — Texas has a bigger budget than its less populous neighbors.

Alas, that $1.9 trillion estimate was not based on anything like this reasonable notion. It was based on the assumption that total spending on discretionary programs will remain constant — in ordinary, non-inflation-adjusted dollars — for the next 10 years. Since the projection also assumes roughly 2 percent inflation, this means a large reduction in real spending. And since the population is going to grow over time, it means an even bigger cut in real spending per person. In other words, that big surplus number is based on the assumption of a drastic, even draconian reduction in government services.

As it happens, the C.B.O. also offered a more realistic projection based on the assumption that discretionary spending grows with inflation. That simple adjustment lops off more than a trillion dollars. But because the population is growing, that still means a substantial decline in per capita spending — and since some programs cannot or will not be cut, it means deep cuts in what remains.

How much is really on the table? I’ve done my own back-of-the-spreadsheet calculation of how the C.B.O.’s surplus projection would change if real spending grew with population; the adjustment brings the total down to around $400 billion.

So how can those reasonable men advising George Bush think that he can offer $1.3 trillion in tax cuts? Assuming that they are neither planning to raid Social Security nor counting on favorable revenue surprises to save them (unfavorable surprises are, of course, out of the question), they must have in mind a sharp scaling back of government programs.

But that, of course, is not at all what the candidate’s rhetoric suggests. He seems to be saying that he only wants to stop those Washington politicians from initiating grandiose new spending schemes. There is little hint that his ”compassionate conservatism” can be financed only if the government sharply cuts back on what it is doing now.

If you ask me, it’s time he had a little chat with his numbers guys.

Where Are the Grown-Ups?

Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option. Right now, players throughout the system are refusing to lend and hoarding cash — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.

It’s true that we don’t know for sure that the parallel is a fair one. Maybe we can let Wall Street implode and Main Street would escape largely unscathed. But that’s not a chance we want to take.

So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge?

Earlier this week, Henry Paulson, the Treasury secretary, tried to convince Congress that he was the grown-up in the room, come to protect us from danger. And he demanded total authority over the rescue: $700 billion to be used at his discretion, with immunity for future review.

Congress balked. No government official should be entrusted with that kind of monarchical privilege, least of all an official belonging to the administration that misled America into war. Furthermore, Mr. Paulson’s track record is anything but reassuring: he was way behind the curve in appreciating the depth of the nation’s financial woes, and it’s partly his fault that we’ve reached the current moment of meltdown.

Besides, Mr. Paulson never offered a convincing explanation of how his plan was supposed to work — and the judgment of many economists was, in fact, that it wouldn’t work unless it amounted to a huge welfare program for the financial industry.

But if Mr. Paulson isn’t the grown-up we need, are Congressional leaders ready and able to fill the role?

Well, the bipartisan “agreement on principles” released on Thursday looks a lot better than the original Paulson plan. In fact, it puts Mr. Paulson himself under much-needed adult supervision, calling for an oversight board “with cease and desist authority.” It also limits Mr. Paulson’s allowance: he only (only!) gets to use $250 billion right away.

Meanwhile, the agreement calls for limits on executive pay at firms that get federal money. Most important, it “requires that any transaction include equity sharing.”

Why is that so important? The fundamental problem with our financial system is that the fallout from the housing bust has left financial institutions with too little capital. When he finally deigned to offer an explanation of his plan, Mr. Paulson argued that he could solve this problem through “price discovery” — that once taxpayer funds had created a market for mortgage-related toxic waste, everyone would realize that the toxic waste is actually worth much more than it currently sells for, solving the capital problem. Never say never, I guess — but you don’t want to bet $700 billion on wishful thinking.

The odds are, instead, that the U.S. government will end up having to do what governments always do in financial crises: use taxpayers’ money to pump capital into the financial system. Under the original Paulson plan, the Treasury would probably have done this by buying toxic waste for much more than it was worth — and gotten nothing in return. What taxpayers should get is what people who provide capital are entitled to: a share in ownership. And that’s what the equity sharing is about.

The Congressional plan, then, looks a lot better — a lot more adult — than the Paulson plan did. That said, it’s very short on detail, and the details are crucial. What prices will taxpayers pay to take over some of that toxic waste? How much equity will they get in return? Those numbers will make all the difference.

And in any case, it seems that we don’t have a deal.

This has to be a bipartisan plan, and not just at the leadership level. Democrats won’t pass the plan without votes from rank-and-file Republicans — and as of Thursday night, those rank-and-file Republicans were balking.

Furthermore, one non-rank-and-file Republican, Senator John McCain, is apparently playing spoiler. Earlier this week, while refusing to say whether he supported the Paulson plan, he claimed not to have had a chance to read it; the plan is all of three pages long. Then he inserted himself into the delicate negotiations over the Congressional plan, insisting on a White House meeting at which he reportedly said little — but during which consensus collapsed.

The bottom line, then, is that there do seem to be some adults in Congress, ready to do something to help us get through this crisis. But the adults are not yet in charge.

Reckonings; Being Bob Forehead

In the opening scene of ”Washingtoon,” Mark Alan Stamaty’s classic Reagan-era political comic strip, an insomniac plutocrat is impressed by a late-night infomercial host. ”Anyone who can sell glow-in-the-dark coat hangers to me could probably sell supply-side economics to America,” he declares. And thus, with guidance from the nation’s leading charismatician, begins the career of Congressman Bob Forehead.

The strong performance by Steve Forbes in the Iowa caucuses shows that a good charismatician, with a hefty budget, can do well even with unpromising raw material. But why does the wealthy publisher feel the need to be his own Bob Forehead? Is he just a capitalist fool?

Many commentators have speculated about the candidate’s personal motivations. And of course, rich men in general are made more likely to run for office by campaign finance laws that allow an individual of means to lavish hard money on his own campaign but not on someone else’s. But the reason this restriction matters so much is that Mr. Forbes is all alone, forced to finance a supply-side campaign single-handed — because the rest of his party isn’t interested. After all, who needs another crusade when you’ve already won?

Consider, if you will, how America at the end of the Rubin-Summers administration compares with America at the end of the previous Democratic presidency. In 1980 the wealthiest taxpayers faced a marginal tax rate of 70 percent — that is, they got to keep only 30 cents of each extra dollar they earned. Now they get to keep more than 60 cents. In 1980 conservative social critics warned that excessively generous welfare was sustaining a culture of poverty; in the 90’s Bill Clinton ended welfare as we knew it. In the late 70’s powerful unions extracted huge wage increases in industries like autos and steel; today only one private-sector worker in ten is unionized, and the unions that remain are shadows of their former selves.

And even more important than these changes in policy is the changing shape of the economy itself. In 1980 conservative critics used to complain that enterprise was not being rewarded, that stock prices had declined in real terms, that America was becoming a society in which it just wasn’t worth trying to get rich. Twenty years later, after a decade that makes the 1920’s seem merely meowing by comparison, it is hard to see what more the rich could ask for.

So why can’t people like Steve Forbes simply declare victory and go home? The well-off would, of course, like to see even lower taxes — which George W. Bush, his life made easy by the revenues a booming economy generates, promises to deliver. (Is he sincere, or is he just doing this because that is what Republicans are supposed to do? Who knows?) But there is one important thing that the supply-side movement has not gotten, and still desperately wants: intellectual vindication.

Put it this way: Mr. Bush’s economic advisers, at least the ones whose names have appeared in the press, are — it pains me to say this – reasonable men. Translated, that means they have a view about the way the world works that differs in some important details but not in broad outlines from the view held by a mainstream economist like me — or, for that matter, Larry Summers. And that reasonableness is what drives Mr. Forbes up the wall.

For Mr. Forbes is, intellectually at least, the true heir of the Reagan revolution — a revolution that was supposed to sweep the ideas of all those establishment types from Wall Street and Harvard into the dustbin of history. The true believers didn’t want a scaled-back welfare state, they wanted a repudiation of the whole idea of a social safety net. They didn’t want economic policy that worried less about Keynesian demand management and more about incentives, they wanted an official declaration that Keynesian economics was a fraud. Call it idealism, call it vanity – the supply-side cause has always contained more than its share of frustrated academics (Newt Gingrich, Dick Armey) – but the movement Mr. Forbes represents wants nothing less than unconditional victory.

http://www.download.com/Antivirus-Firewall-Spyware/?tag=TOCcarouselArea.1

http://blogs.vmware.com/teamfusion/2008/05/my-switch-from.html – virtual machine.

http://macapper.com/2007/03/19/vnc-remote-desktop-for-free/ – free remote desktop

http://www.parallels.com/ – parallel

http://ultimatetechbase.blogspot.com/2008/07/remote-control-your-desktop-from.html

Remote control your desktop from anywhere for free

Nowadays it has become a need of to access data at anytime, from anywhere. One cannot carry all of his data along with him but one can get from his home computer very easily . Below are the various free options which one can think of using to ease of his life.

Logmein

No doubt the easiest service that can be use to remote control the computer. Just go to www.logmein.com, register yourself and then just add different computers, which you want to access. When you will click on Add Computers to add the computer which you want to access, it downloads a software and installs it on the computer. After the whole procedure is complete, the new computer is displayed in the account. The site offers a wide range of services ranging from free( which is only enables to access one computer that too in presentation mode) to commercial services like remote support.

GotomyPc

It is same as Logmein.com but doesnot has a trial version instead of free version.
For more info click here

TeamViewer

The best part of this software is, it is free for personal use. You just need to download it both the computers, connected to internet, which you want to share and run it. It require authentication on both the computer every time when it is run, that means that one can only use it if he wants to share his desktop with is friend on the other computer. But the software is secure because a new Username ID and Password and generated each time it is run while the computers are online.
For more info click here

Avvenu

Recently acquired by Nokia, allows one to easy control and share the computer from other computer or mobile phone. Its free and involves donwloading and installation of the software and also allows free file sharing.
For more info click here

Remotely Anywhere

Fast, secure system administration FROM ANYWHERE. RemotelyAnywhere 8 offers industry leading security and performance for remote administration. It is two flavors, Workstation Edition and Server Edition. It is available for 30 day trial and has the following features:-

» Vista Compatible
» Disk Mapping
» 64-bit Compatible
» System Dashboard

» Guest Invite
» Public Key improvements
» PDA Remote Control
» Access via Any Web browser

» Easy Enterprise Deployment
» SSH & FTP
» File Transfer & Synchronization
» Automatic Alerts

For more info click here

VNC
The common name heard when the topic of remote access comes. For all who dont know what is VNC, it is Virtual Network Computing and is based on server/client architecture. The server part of the VNC is installed and configured and installed on the computer which is to be access remotely and the client of can be used on any computer from which one wants to access the remote computer. VNC comes in different flavors, but all of them work in the same way. It is free to download can be used on different flavors of Operating System like Windows XP,Windows Vista, Linux,Unix. Also using while using it you have to make sure the particular ports of VNC that is 5800 & 5900 are open and forwarded properly on your router. Click here for more info on Port Forwarding.
One can choose any of the following flavors of VNC:-

» UltraVNC
» RealVnc
» TightVnc

Below are various options on MacOS

Clients (Mac OS X):

» JollysFastVNC – currently in alpha, but already the best client out there in terms of speed and international keyboard support.
» VNCDimension seems to have partial support for non-US keyboards (but no dead keys) and very fast graphical updates.
» Chicken of the VNC – No international key support, works OK with the built-in Mac OS X server.
* VNCThing – read my blog entry for more (and a link to the source code).
» Workspot modified VNC

Clients (Other):

» FlashVNC – a Flash viewer.
» MochaVNC – for Palm and Pocket PC, supports the newer procotol versions and has a built-in SSH tunneler.
» PVNC, a VNC client for the PlayStation Portable
» DirectVNC, fbvnc – framebuffer-based clients.
» Palm VNC – with server-side scaling extensions
» Enhanced Full-Screen Clients
» SSHVNC – a combined client

Servers:

» Schnitz Remote
» Alkit VNC – allows single-window sharing.
» RealVNC – the original (and still the reference) implementation. Also has the most efficient client (old homepage)
» Vine Server (formerly called OSXvnc) – native Mac OS X server, which now supports multiple simultaneous remote sessions
» Ultra VNC Single-Click Server – a nice, customizable Windows server that helpdesk staff can e-mail to someone in need of help.
» J2ME VNC – for MIDP/J2ME
» MetaVNC, an intriguing way to share single windows

Tools and Libraries:

» VNC Snapshot – can take screenshots of a section of the display and save them in JPEG format.

» VNCj – a nice way to serve Java AWT applications.
» Vnc2swf – a Flash recording tool, which now has an editing tool available.
» LibVNCServer – also has a client library
» perlVNC – fear.
» PyVNC – a Python VNC client
» VNC Reflector

Today is the end of the era of the wall street as Goldman and Morgan shifted to depository system. Good bye to investment bank and good bye non depository system. No more risky business means no more high profit. I am not sure whether it is good or bad. Professor Krugman wrote the column, calling Paul’s bail plan as cash for trash.

I reorganized Hera’s part as Rebecca sent the second half of the writing. I also met Dr.Craig and listened to her idea, starting to work on the power point slides.

I got to know Kenneth Burke and his legacy. I found his name from the book “the work of writing.” In the first chapter of the book, professor Rankin suggested us that we should put the possible contribution of our writing in our writing. Also, he advised us to believe our intuition that our writing will become a meaningful work and thus worth writhing it.

His recommendation lists are as follows.

. Describe what attracted you to the topic / How you started working on it / What you learned as you did

your research and background work. / informal writing in a personal not — switch to formal writing in a

computer.

http://en.wikipedia.org/wiki/Kenneth_Burke – Kenneth Burke. He is a life long interpreter of Shakesphere.

Cash for Trash

Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system “cash for trash.” Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.

There’s justice in the gibes. Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers’ money on behalf of a plan that, as far as I can see, doesn’t make sense.

Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us.

So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?

Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn’t clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.

Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?

The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.

That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)

But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.

I’m aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

But I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

Reckonings; The Magic Mountain

This week the Swiss ski resort of Davos, once the home of a sanitarium, will play host once again to the annual meeting of the World Economic Forum — a unique gathering of the world’s business and political elite. I last attended five years ago, even though the forum has officially declared me a G.L.T. (that’s Global Leader of Tomorrow — hold the mayo), which I think means that I have a standing invitation. But I’m sure that my first impression will be similar. After all, the sight of all those wealthy and important people in the same place, with scores of famous intellectuals in attendance, surely inspires the same thought in even the most cynical of observers:

Come the revolution, we shoot these people first.

O.K., not really. But the scene at Davos — the superrich and their trophy wives schmoozing with officials elected and appointed, the lavish parties thrown by third-world nations, and so on — represents a sort of distilled essence of everything that people love to hate about the New World Order. Those on both left and right who view globalization as a sort of conspiracy by rootless cosmopolitans against the rest of us could hardly have asked for a better spectacle.

As it happens, I am one of those who believe that globalization is overwhelmingly, though not entirely, a good thing. So the instinctive negative reaction that even someone like me feels toward ”Davos Man” (a phrase coined by the political scientist Samuel Huntington) suggests just how serious a public relations problem now faces the global economy in which Davos Man flourishes.

The reality is that globalization makes the world a richer place, but the wealth it creates goes disproportionately to two sorts of people. On one side are those who benefit from vastly improved access to technology and capital — which is to say, workers in developing countries. On the other are those in advanced countries who, directly or indirectly, have technology and capital to sell — which means the rich and the highly educated. Largely left out of the party, possibly even made worse off, are those who fall into neither category. Most conspicuously, competition from those newly productive third-world workers is one, though probably not the most important, of the reasons that real wages of many American workers have stagnated or even declined over the last 25 years.

It is, to be honest, a picture that contains some shadows. Still, if you ask about the overall effect on the human condition, globalization has been a huge force for good. Just ask the South Koreans, who have telescoped three centuries of European progress into the last 40 years; or even ask the Bangladeshis, who remain desperately poor but whose export industries have kept them from sliding into Malthusian catastrophe. You could say — and I would — that globalization, driven not by human goodness but by the profit motive, has done far more good for far more people than all the foreign aid and soft loans ever provided by well-intentioned governments and international agencies.

But in saying this, I know from experience that I have guaranteed myself a barrage of hate mail. For there is another kind of person — Seattle Man? — who is passionately committed to a simpler view, without any ambiguities. Seattle Man believes that globalization is purely and simply a way for capitalists to exploit the world’s workers. He contrasts the wealth and privilege of global movers and shakers with the poverty of sweatshop workers, and gets angry if you try to suggest that those sweatshops are better than the alternative (let alone that they might, as in South Korea, be the first step on the way to first-world living standards). Seattle Man, in short, does not believe that most of the world is still poor because development is hard to do; he is looking for villains. And in places like Davos he has found putative villains who might have been chosen by Central Casting.

Now with some exceptions the people who will be at Davos aren’t really villains: they are no worse, though a lot richer, than the rest of us. But they have an image problem, one that threatens the process of the globalization for which they stand. Will the great and (in some cases) good who meet this week find answers to that problem? Stay tuned.

unfurl : unfold

ably

cusp : a turining point

tutelage : guardianship(후견인)

On Sunday, Henry Paulson, the Treasury secretary, tried to draw a line in the sand against further bailouts of failing financial institutions; four days later, faced with a crisis spinning out of control, much of Washington appears to have decided that government isn’t the problem, it’s the solution. The unthinkable — a government buyout of much of the private sector’s bad debt — has become the inevitable.

Thus, banks are normally able to borrow from each other at rates just slightly above the interest rate on U.S. Treasury bills. But Thursday morning, the average interest rate on three-month interbank borrowing was 3.2 percent, while the interest rate on the corresponding Treasuries was 0.05 percent. No, that’s not a misprint.

This flight to safety has cut off credit to many businesses, including major players in the financial industry — and that, in turn, is setting us up for more big failures and further panic. It’s also depressing business spending, a bad thing as signs gather that the economic slump is deepening.

And the Federal Reserve, which normally takes the lead in fighting recessions, can’t do much this time because the standard tools of monetary policy have lost their grip. Usually the Fed responds to economic weakness by buying up Treasury bills, in order to drive interest rates down. But the interest rate on Treasuries is already zero, for all practical purposes; what more can the Fed do?

Well, it can lend money to the private sector — and it’s been doing that on an awesome scale. But this lending hasn’t kept the situation from deteriorating.

There’s only one bright spot in the picture: interest rates on mortgages have come down sharply since the federal government took over Fannie Mae and Freddie Mac, and guaranteed their debt. And there’s a lesson there for those ready to hear it: government takeovers may be the only way to get the financial system working again.

Some people have been making that argument for some time. Most recently, Paul Volcker, the former Fed chairman, and two other veterans of past financial crises published an op-ed in The Wall Street Journal declaring that the only way to avoid “the mother of all credit contractions” is to create a new government agency to “buy up the troubled paper” — that is, to have taxpayers take over the bad assets created by the bursting of the housing and credit bubbles. Coming from Mr. Volcker, that proposal has serious credibility.

Influential members of Congress, including Hillary Clinton and Barney Frank, the chairman of the House Financial Services Committee, have been making similar arguments. And on Thursday, Charles Schumer, the chairman of the Joint Economic Committee (and an advocate of creating a new agency to resolve the financial crisis) told reporters that “the Federal Reserve and the Treasury are realizing that we need a more comprehensive solution.” Sure enough, Thursday night Ben Bernanke and Mr. Paulson met with Congressional leaders to discuss a “comprehensive approach” to the problem.

We don’t know yet what that “comprehensive approach” will look like. There have been hopeful comparisons to the financial rescue the Swedish government carried out in the early 1990s, a rescue that involved a temporary public takeover of a large part of the country’s financial system. It’s not clear, however, whether policy makers in Washington are prepared to exert a comparable degree of control. And if they aren’t, this could turn into the wrong kind of rescue — a bailout of stockholders as well as the market, in effect rescuing the financial industry from the consequences of its own greed.

Furthermore, even a well-designed rescue would cost a lot of money. The Swedish government laid out 4 percent of G.D.P., which in our case would be a cool $600 billion — although the final burden to Swedish taxpayers was much less, because the government was eventually able to sell off the assets it had acquired, in some cases at a handsome profit.

But it’s no use whining (sorry, Senator Gramm) about the prospect of a financial rescue plan. Today’s U.S. political system isn’t going to follow Andrew Mellon’s infamous advice to Herbert Hoover: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” The big buyout is coming; the only question is whether it will be done right.

 This article has been revised to reflect the following correction:

Ecuador is a small, faraway country of which most Americans probably know nothing. (Hint: it’s on the equator.) Last week, amid the hoopla of the AOL-Time Warner deal, one suspects that few noticed the surprise announcement by President Jamil Mahuad that he would abolish his nation’s currency and replace it with the U.S. dollar. But there is an important story behind that story, which is not so much about Ecuador as about the great financial crisis that swept Asia in 1997-98, and the continuing debate over what to do when the next crisis strikes.

Everyone agrees that the Asian crisis was, in the first instance, a case of financial panic: basically, after enthusiastically putting hundreds of billions of dollars into Asia in the years before 1997, investors suddenly lost their nerve and began pulling out all at once, with catastrophic consequences. But there is a sharp difference of views over what could have prevented or at least mitigated that crisis.

Broadly speaking, one view holds that in times of panic the normal rules of business should be suspended — that investors should be persuaded, or if necessary forced, to keep their money in place while the authorities get things under control. In the oddly euphemistic jargon of international finance, this is known as ”burden-sharing,” or even more obscurely as ”private sector involvement.”

The other view holds that the way to deal with panic is to try to reassure investors that their money is absolutely secure — and that one way to do that is to offer an ironclad guarantee that their holdings of Korean won, or Indonesian rupiah, or Ecuadorian sucres, will not lose their value in terms of dollars. This can be done by establishing a ”currency board,” which holds dollar reserves large enough to back the entire national money supply; it can be done even more decisively by ”dollarizing” — that is, abandoning the national currency and using dollars instead.

It is an unresolved debate, because neither approach was given much of a trial. Hong Kong has a currency board, but was never itself the object of investor panic — it just happened to be living in a bad neighborhood. Malaysia imposed controls on investors, but only after the worst of the panic was past.

And that’s where Ecuador comes in. The small Latin nation has the dubious distinction of having plunged into crisis just as Asia climbed out; and as a result it has become a sort of guinea pig for economic nostrums. It is by no means an ideal choice as a clinical model. After all, at the beginning of 1997 Asian economies looked robustly healthy, with their government budgets balanced or in surplus; their crisis came, as it were, out of a clear blue sky.

Ecuador, by contrast, has always been more or less a mess; its plunging currency is only the outward sign of an inward disgrace, of a bankrupt banking system that cannot be rescued by an equally bankrupt government. But nonetheless, Ecuador is the test case we have, and its experience is likely to have a disproportionate effect on how the next big crisis is handled.

Indeed, the tiny nation has already done much to discredit the notion of ”private sector involvement.” Last September Ecuador decided, with more or less explicit encouragement from the International Monetary Fund, to temporarily suspend payment of some of its foreign debt. The experiment was a failure: while some investors found their money locked up, others continued to flee Ecuador, and the economy’s tailspin continued.

Now its government has swung to the other extreme, and is trying to restore confidence in the currency by abolishing it. Observers say that this could work if it is accompanied by extensive domestic reform — which is a bit like the old line that you can kill someone with witchcraft, if you also give him plenty of arsenic. But if it works, it will do much to make dollarization likely elsewhere (Argentina, for example); if it fails, as is much more likely, it will give dollarization a bad name.

And the outcome matters. Sometime — almost surely sometime this decade — there will be another great financial crisis like the ones that struck Mexico in 1994 or Asia in 1997. What will we do about it? Believe it or not, Ecuador may determine the answer.