Former President Bill Clinton sees the changes as more fundamental. "First," he said, "it could change the political culture. I think that's important. I think it's important that you have the Republicans and Democrats in Congress asking the same good questions, good questions about if we're going to put up $700 billion, how will it be spent; to help homeowners, to give the taxpayers a chance to get their money back, to be transparent? I think that's important. I also believe it will have beneficial long-term economic consequences. Goldman Sachs and Morgan Stanley ... (will) still be able to issue stock, they'll still be able to have some speculation... but there --you are not going to have these crazy binges of sub-subprime mortgages or the derivatives, because people now recognize all over again what they had to learn in the depression and two or three times since, which is markets, if unaccountable at the margins, will self-destruct. They will cannibalize themselves. So I think we've learned that. Listen, if we can just get out of this thing now and get the show back on the road, we will have learned quite a lot that's good for us."

One can only describe yesterday's Wall Street as "a world of big egos...where people love to roll the dice with borrowed money...in search of ever-higher returns," and what those returns can buy. A place where private equity firms amassed giant funds and went on a shopping spree, snapping up companies as if they were second wives buying Jimmy Choo shoes on sale.

This is the end of an era. Think of the firms that are gone - legends like Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual and Wachovia. The days of easy money and supersized bonuses are behind us now. The credit boom that drove Wall Street's explosive growth has dried up. Regulators and lawmakers like Chris Dodd and Barney Frank, who sat on the sidelines sucking in political contributions and turning a blind eye for too long, are now eager to rein in Wall Street and the practices that proliferated in recent years. They both should be tarred and feathered and run out of town on a rail.

If we live through the current mess with the roofs over our head and at least a few dollars in the bank, it may be a much better financial world that results: one in which there will not be such a concentration of wealth and imbalance of earnings. But we Americans are also undergoing some profound changes.

We are finally getting a financial education. The education system has been criticized on the basis that Americans are not taught about the world of money they must inhabit. We don't know how to balance our checkbooks; understand the value of savings; realize that the irresponsible use of credit can ruin us or have the slightest idea how mortgages work. It isn't the education system that should bear the brunt of making us responsible users of money. The fact is we simply have been too lazy to pay attention. We are paying attention now!

It would be interesting to note what percentage of adults had never heard the words "derivatives" or "mortgage backed securities" six months ago and the percentage who can now give a credible explanation of those terms. The importance of Fannie (Frick) and Freddie (Frack), the Federal Reserve, and FDIC Insurance is now crystal clear to Americans who cannot get a mortgage or who have seen their banks fail. But even more importantly: Americans have once again learned that, if they make enough noise, they can impact the system. This should continue with a thorough cleansing – a Congressional High Colonic. We need to flush these rat-bastards out of the bowels of Congress. We need to send a message to these hoodlums once and for all.

These Congressional hoodlums report that they have been buried in emails, letters, and phone messages about the bail-out from their constituents and that some report that sentiment, in fact very angry sentiment, has been running 100 to one against the original plan. This obviously has not been lost on them as they rejected much of Treasury Secretary Paulson's original plan and then voted down the revised version, maybe wrong-headedly and with little regard for the possible outcome. Maybe it’s because Nancy Pelosi reared her ugly head in a most un-timely “It’s all Bush’s fault” diatribe. Still, voters are feeling empowered.

We heard of vast irresistible forces converging in "perfect storms" and unforeseeable events contributing to "100-year floods." How could we have expected, let alone prevented, this? Count on Warren E. Buffett to cut to the truth. Buffett noted: "You never know who is swimming naked until the tide goes out." Well, the tide's moving out and we're starting to get the full, not-so-pretty picture. Along with the obese, naked swimmers emerging from the soggy murk, we're being reminded of some of the dumb ideas and reckless choices that helped deliver us to our current debacle.

As stunning as the scene seems, we've actually had plenty of experience with this sort of thing. But like some stubborn residents of hurricane zones, we swiftly choose to forget the last tempest and reassure ourselves that things will be different from now on. Why don't we learn the obvious lesson to the contrary? Answers: the timeless power of hubris during periods when profits seem easy, and a set of foolish financial notions that have become prevalent over the past three decades.

Why should American taxpayers give US Treasury a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented financial institutions in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole?

None of the above will occur. American taxpayers will pony up between $700-$800 billion to buy any bank assets The Treasury wants, on any terms, with no possible legal recourse. It is an invitation to an abuse of power unparalleled in our history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.

Why are the voices raised in protest so shrill and so few? Why will we fall on our fountain-pens for our bankers? If we are to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should Americans that earn a mere $50,000 a year subsidize those who earn $5 million a year?

Believe it or not, there is a rational explanation. Part of the problem is that Wall Street, like Godfather Don Corleone, has made America an offer it cannot understand. The collapsing mortgage-backed securities market embodies a degree of complexity that mystifies the average American.

If Paulson's dreadful scheme will become law, it will be because Americans love their bankers. The bankers enable our collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play.

Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.

We are so deep in the hole that we might as well keep putting borrowed quarters into the one-armed bandit. We have hardly saved anything for the past 10 years. Instead, we counted on capital gains to replace the retirement savings we never put aside, first in tech stocks, then in houses. That hasn't worked out.

Home prices doubled between 1997 and 2007 before falling by more than 30%, and there is no floor in sight. As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less).

Altogether, we'd rather gamble, and if that requires a bailout of the house, we gladly will chip in to pay for it. After all, we won't pay for the bailout. The next generation of taxpayers will pay for it. If that enables the present generation to keep borrowing rather than saving, it is no skin off their back. If home prices continue to collapse, the baby boomers will die in debt anyway, gambling away what little they have and working at low-paying jobs until the day before their funerals.

Why the taxpayers of America would allow our pockets to be picked in this fashion requires a different sort of explanation than one finds in economics textbooks. In effect, it is like my economic theory in terms of gambling, showing how profoundly gambling figures into human behavior, especially in such matters as so-called life-cycle investing. The 50-ish householder who has not made enough to retire may take outsized chances, considering that as matters stand, he will work until he drops dead in any case.

If people reach the age of fifty or fifty-five and have not "made it," what are their financial options to still live the good life? Except for allocating a few bucks to buy lottery tickets, it is hard to think of any other option. If people find themselves down on their luck and see no immediate opportunities to get rich, what can they do to sustain their hopes and dreams? Allocating a fraction of their portfolios with a chance to win a large prize is among the options. They will tend to challenge their luck for a while, taking risks that they might have contemplated before in business, financial markets and other areas but did not follow up with action.

There is no doubt that the world has changed this past week. And now we are getting ready to try an experimental procedure on America and it's going to cost Main Street big time. It is being said that the United States has just a few months to live unless the federal government conducts radical surgery to rid us of the subprime mortgage cancer. Unfortunately, no one seems to want a second opinion. It's bailout or bankruptcy for all.

Conservative estimates put the cost of a meltdown at $14 trillion in losses - the size of the entire U.S. economy. Paulson is offering a fix that would cost $700 billion, a real bargain if the entire economy falls to Depression-era levels. Paulson says he doesn't want to offer a massive Wall Street bailout, but he sees no alternatives. But there are. Some of them would even produce a faster short-term recovery while also benefiting America in the long-term. Releasing the private sector in response to this crisis would promote innovation instead of being complacently reactionary.

The immediate concern is lack of liquidity in today's markets. Paulson's believes the "illiquid assets" (assets no wants in today's market such as securitized subprime mortgages or homes that can't be sold) of America's financial institutions are the source of our banking woes.

His plan is to buy up their bad loans, allowing banks to take these underperforming assets off their books. This would allow them to begin lending again to borrowers with a stronger financial track record and generate profits. Meanwhile, the federal government—U.S. taxpayers—are stuck with managing the old bad loans. That's the bailout.

Secondary concerns from Congress are centered on corporate liability. Democrats want a compensation cap leveled on Wall Street CEOs. Republicans don't want to reward their failed investments with a get-out-of-bankruptcy-free card. The details are still being debated in Congress, but these battles are primarily political, not economic. Limiting pay to punish executives wouldn't solve anything. It would only serve to drive good talent from top-level jobs while firms find loopholes to provide compensation in other ways (such as a company car or stock options). Moreover, the top executives at Lehman and AIG lost millions in their corporate failures. That's market accountability, not political grandstanding.

All this begs the $700 billion question: Is a federal bailout of the financial services industry necessary? The Founding Fathers used the Constitution to purposefully create a slow moving Congress. They didn't want it to make rash decisions. While the legislative branch is supposed to keep taxpayer interests first, they are also supposed to be a check on executive branch authority—not a rubber stamp on an imperial presidency.

Several alternative actions could be taken to meet both immediate and secondary concerns raised by the current financial turmoil:

First, Congress could eliminate or reduce the capital gains tax. Cutting federal taxes on corporations would allow them to use those funds they would have given the government to cover illiquid asset losses. This would protect taxpayers from loses if the Treasury were to buy up the bad illiquid assets and keep firms accountable for their actions.

Beyond allowing financial institutions to retain capital, cutting capital gains taxes would allow for firms not under pressure from subprime-related losses to grow larger, creating a more competitive market. These bigger firms could even become a source of private sector bailouts of failing firms through mergers and acquisitions.

Second, Congress could cut corporate taxes and small business taxes in general. Trimming taxes for "the rich" opens up new capital to be invested in a struggling economy. At a time when investor confidence in the stock market is low, a tax cut for businesses would encourage innovation and entrepreneurial activity. The effects would be similar to that of a stimulus package, only without the government's involvement or a redistribution of wealth.

Third, the SEC should suspend the "mark-to-market" accounting rules for long-term assets that are driving firms into bankruptcy. Essentially, these regulatory rules are forcing firms to value their assets at much lower prices than what they would be worth long-term. The intent of mark-to-market regulation was to keep firms from overvaluing themselves and deceiving investors. Instead the law has artificially devalued financial institutions as a whole, which hurts their investors. This accounting clause has significantly contributed to the bankruptcies of Lehman Brothers, Merrill Lynch, AIG, Bear Stearns, Morgan Stanley, Citigroup, Washington Mutual, and many others.

Fourth, Congress should repeal Sarbanes-Oxley, which is driving away entrepreneurial spirit. This law, passed in the wake of the Enron and WorldCom collapses, was intended to rein in corporate fraud. But the rules it put in place have not protected America from perverse profit motives brought on by the "too big to fail" philosophy.

Ultimately, the debate over what to do comes down to a threshold of pain and perspective. Capitalist philosophy suggests that short-term financial pain—even a great degree of pain—will prevent long-term financial destruction. The markets, in other words, are going through a cleansing process. But this is not acceptable to many, particularly the politically motivated, who always prefer to solve future problems at a later date.

Here's the issue: Are we willing to consider all treatment options, or will we dive for the quick, easy, and untested procedure and then hope for the best?

Let’s just say, if there is anything left when the smoke and ashes clear: May your investments be profitable. God Bless!