The Rudd Government is getting it about right

Of course this general principle needs to be translated into a concrete proposal. One idea that has been canvassed is that financial institutions with “toxic assets” be required to hive these off, perhaps into a subsidiary of the bank which will have to deal with these assets separately to its “normal” operations. It may be that the plan involves some assistance by governments and some short-term concessions to debtors in regards to their financial obligations, perhaps in exchange for a “signing over” of rights to future capital gain, the proceeds of which will, in the longer run, help to fund the immediate assistance.
This is not the only possibility and it may not be the best. But it would help the reputation of economists if they could play a more positive role in making suggestions as to how this principle could be translated into practice.

Looking to the future, again, we might look hopefully to economists who have an understanding of the financial system for proposals in regards to the regulation of financial institutions. “Regulation” may in fact only need to be relatively light. It might not amount to much more than agreeing that governments should desist from influencing financial institutions to behave imprudently - as they were by US legislation under the title of “The American Dream” that forced US banks to lend to home buyers who had little or no prospect of repaying their loans.

Whatever the case here’s an issue to which the world might look hopefully to the economics profession to advise it on, and in respect of which economists may gain more kudos than they do arguing over the effectiveness of different mechanisms of providing an economic “stimulus”.

As to the “question du jour” - whether the Rudd Government’s actions so far have been an appropriate response to the current crisis - perhaps all that there’s any point in saying is: “all things considered, probably yes”.