There is a really good discussion going on here at Mark Thoma's blog. He has aggregated recent blog posts from Krugman and the WSJ blog, and has added his own good analysis.  This is greatly augmented by many comments reflecting a lot of practical knowledge and insight as well as economic theory. Really basic issues are being intelligently discussed, although no issue quite as basic as this one I raised:

Just reading some of the comments here provides a basis for estimating that the problem could be bigger than the US government can handle. Potentially $5 trillion in bad real estate loans, for starters. Then there is the whole hedge fund black box of unknown huge size and risk. Since these shadow banks undoubtedly have counterparties in the visible financial system, their failures cannot be contained and ignored. Isn't it possible that Paulson is not just trying to protect the wealth and status of his peers (for whom I have no sympathy), and is not prevented by a laissez faire ideology from officially nationalizing failing financial institutions, but that he is actually and reasonably scared to death?

If the Tarp Team [refers to Bernanke, Paulson, and other officials working on "troubled asset relief program"] were motivated but such a fear, what actions would it be proposing now? Wouldn't it try to slow down the rate of asset value deterioration enough to allow time for capital infusions from private wealth and sovereign wealth funds. For example, (i) stop short sales to partially disarm the bears, (ii) arrange for transactions that substantiate higher valuations for troubled assets (maybe you could do this with only $700 billion) or in some other way circumvent the mark-to-market rules so that troubled institutions can carry trash at higher values, (iii) by whatever means are available get cash or cash equivalents into firms that can be saved, and (iv) keep interest rates low to try to guide housing prices into a soft landing. Is this why Bernanke's eyes were loose in his head [as reported by some observers of today's testimony]?