KEY POINTS:
The country that calls itself the US of A now needs another "S" in its title: the United Socialist States of America. The problem is: they aren't united about it. The attempt by the US government to plaster "Wall St" - their shaky financial sector - with up to US$700 billion ($1 trillion) in public funding has exposed deep divisions in the country and its politicians.
A compromise deal cobbled together enough votes to pass Congress. But the count - 263-171 - shows how far it was away from getting anywhere near unanimous support.
And nor should it have. Deep doubts are held by both the political right and left. The conservatives say: this is not how you run an efficient market economy. The liberals say: this is not what you do with taxpayers' money - bail out shonky banks.
Interestingly, there has been no such furore about some of the other measures taken to counter the so-called financial "meltdown".
The nationalisation of the huge mortgage companies Fannie Mae and Freddy Mac - turning them into state-owned enterprises, in our parlance - was carried out swiftly and smoothly and without fuss.
So, too, was the brilliantly deft action of the Federal Deposit Insurance Corporation in shutting down the huge but insolvent bank Washington Mutual, having first brokered an instant transfer of its business to JPMorgan Chase.
But these were examples of "clean socialism", done without compensation and leaving the taxpayer either holding a stake in the future profits of the revived enterprise or not carrying the can for any future mistakes.
The Wall St bailout is dirty socialism. Same thing as crony capitalism, really - the mixed economy at its worst.
Think about it in New Zealand terms. Suppose one of our five big retail banks had got itself into financial trouble selling or buying sub-prime mortgages now exposed by the downturn in house prices. (Sub-prime mortgages are large - usually 100 per cent - house loans made to people with poor credit ratings.)
The bank says: "We really, truly promise to never do this ever again, but because we did do it in the past we are insolvent, meaning that now we can't even issue good loans to keep the economy ticking over. So give us a pile of cash, please."
Well, given that the real problem is not the losses of particular institutions but the "liquidity" of the whole financial system - meaning its ability to make credit available to solvent households and profitable firms - our government might come up with a better idea. It might say: why throw good money after bad? If we need to inject liquidity into the system, let's do it through the good banks, not throw it at the nitwits whose rash and greedy actions got us into this mess.
That would work in New Zealand, because we do have good banks. In fact it won't be necessary here for that very reason - apart from the disreputable finance firms who have gone under.
Unfortunately, the Americans' apparent problem is that they don't have enough "good" banks to pump the liquidity through - all are mired in the sub-prime morass. But they could do some lateral thinking here.
The government now owns two large retail financial institutions - Fannie Mae and Freddy Mac - that it could quite easily turn into Main Street banks (just like NZ Post expanded to Kiwibank).
For probably a quite small fraction of US$700 billion it could provide adequate finance to these firms to ensure that good borrowers can have access to good loans.
But that's their problem. Or is it? We've had the news here that the big PGG Wrightson-Silver Fern merger deal is delayed because of funding problems blamed on the crisis. Actually, that is nothing to worry about in itself.
The two firms continue to trade profitably, and, on the odds, may be better apart - most mergers turn out to be mistakes, driven by managerial hubris and over-optimism about "synergies".
But it would be bad if genuine new investment, and business generally, is constrained by the confusion in the financial markets. Well, it probably will be, whatever we do.
We have of course no influence on what happens in Washington and Wall St. All we can do is hold our nerve, hang in there, and hope that our own Reserve Bank can now be as effective at easing monetary and credit conditions in our economy as for years it has been assiduous at tightening the financial screws.
* Professor Tim Hazledine is head of the department of economics at the University of Auckland.
