Hey buddy, can you spare a trillion?

The question of the day is whether the Paulson Plan is a starting point for negotiations or a declaration of what the administration intends to do. This morning's news of the Fed's reclassification and escalated oversight of Goldman Sachs and Morgan Stanley seems to indicate that Paulson is steaming ahead full speed.

Another way to ask the question is to ask whether the technocrats, now exiled for nearly eight years, can push hard enough to insure that reasonable policies are adopted. Krugman seems to speak for the emerging consensus among the technocrat peanut gallery in his column today.

The logic of the crisis seems to call for an intervention...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? |Krugman|

Part of the answer, probably, is that Wall Street is really happy with the Paulson Plan. To the extent that confidence will carry us through the crisis, that counts in its favor.

One thing is clear. If the Democrats have any chance at all of significantly modifying the shape of the government's response to the financial crisis, taking that chance requires that they come up with a clear alternative and invest significant political capital in getting their own plan through.

Another thing that's clear is that John McCain, just as he did during his many years chairing the Commerce Committee, is abdicating all responsibility of any kind. His plan, as he revealed Thursday and Friday, is to stand on the sideline and blame "Washington insiders." Count on him to double down on that message.

The conventional wisdom is that the crisis helps Obama because the Democratic brand is so strong on the economy. Maybe so, but McCain is betting that no matter what the government does, it will be unpalatable to most voters. If there's a fight over policy, as there should be, McCain is going to characterize it as Democrats holding the economy hostage to special interests and back room deals. It's no surprise, to me at least, that McCain released a Rezko ad this morning. Expect more of the same as we push past the moment of crisis and focus on fixing blame for the increasingly severe economic downturn.