In the sciences of finance and economics, what is the credit panic all about — and what can be done about it?

First a point about your central assumption: Finance and economics are not true sciences. They are not like chemistry or physics or mathematics. They are more like psychology, sociology and political “science” — akin to shamanism because they contain so many variables and are subject to the occult conjurings of modern-day medicine men.

OK . . .

So. The nation’s financial construct is of such intricate complexity and interdependency that few understand it, leaving fewer still to explain or interpret it. That’s why when you turn on a network gathering of bigwigs or listen to congressional pols expatiating about the panic and how to alleviate it — you come away shaking your head in dismay that these talking heads, particularly the distinguished legislators in Congress assembled, haven’t a blessed clue. They don’t.

Another example of why Congress lags the president in public support?

Exactly. Congressman Barney Frank, a socialist and head of the House Financial Services Committee, intones, “The private sector got us into this mess. The government has to get us out of it.” Frank was key to stymieing the Bush administration’s several efforts to bring Fannie and Freddie to heel.

His Senate counterpart, Banking Committee chairman Christopher Dodd, is Congress’ No. 1 recipient of campaign funds from Fannie Mae and Freddie Mac (Barack Obama is the No. 2 recipient). And Obama has surrounded himself with incompetent alumni from precisely the entities — Fannie and Freddie — the government now has had to take over.

You mean…?

Yes, the very same exorbitantly paid incompetents.

So what is the cause here, and what is the cure?

This panic, now moving toward a worldwide economic recession, was brought to us by members in our too-smart financial and political classes driven by greed and power. Add in Enron accounting, and you have an opaque, Rube Goldberg construct based heavily on loans, usually for housing, whose value is plunging through the floor. One after the other, institutions that hold the loans, which never should have been made, are going toes-up.

The solution?

There may not be one, beyond Treasury Secretary Henry Paulson’s proposal — backed by Federal Reserve chairman Ben Bernanke — for $700 billion in government bailout money to help the nation’s remaining financial institutions write down their bad loans.

But wouldn’t that be asking the taxpayers to pony up for the financial class’s bad bets? And wouldn’t that usher in an era of unchecked government interventionism out of place in a free economy? Do we want the government running financial institutions with all the efficiency of quasi-government operations like Amtrak and the Postal Service?

The less the government runs, of course, the better. Still, here’s how Secretary Paulson put it Tuesday: “I have never been a proponent of intervention, (but) I just think we have an unprecedented situation here and it calls for unprecedented action. There’s no way to stabilize the markets other than through government intervention.” Continued...