We’ve been getting quite a few questions about our views on the big picture.  Let me try to set this out clearly, in terms of where we are (September 27, 2008, early Saturday morning) and where we are heading.

Let’s call the $700bn package currently under discussion Plan A.  Despite the roadblock thrown up by the House Republicans, we think some form of this plan will pass Congress soon, and so it should.  The situation in the financial system is serious and inaction would be a recipe for disaster, especially now that the government has created the expectation of action.  We are also of the view that the package could have been better designed (e.g., we emphasized governance and transparency in the articles posted here).  And we are encouraged that its design has improved this week, at least in the draft agreement of Thursday afternoon.

Plan A is obviously not comprehensive, and again we’ve covered the two main missing issues (a direct approach to defaulting mortgages and deficient bank capital) here and in various other on-the-record remarks.  (We’ll post more of these to help complete the picture regarding our views.)

If Plan A comes out of Congress in reasonable shape, as seems likely, we will support it.  We need it to work.  But we also need to start discussing what would have to be done if Plan A does not work, or if the cracks now visible in the global financial system continue to widen.

Yes, we need a Plan B.  Even if the odds of success for Plan A are high (ask us again on Monday about that), it makes sense to plan for contingencies.  And we really don’t want to repeat the experience of this week, in which the initial proposal is weak and has to catch up with economic and political realities in a hurry.

And it strikes us that the discussion on Plan B needs to be public, in places like this.  This does not undermine Plan A, in our view, because Plan B will not be so difficult.  It will not be business (lobbies) as usual, but it will be doable.  Our submission, longer than 2 1/2 pages, will be up here by 9am Monday, Washington time, at the latest.

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