The WSJ is reporting that the bank-rescue plan to be unveiled by Treasury Tuesday will call for the government to spend the first $250 billion of its TARP stash buying equity stakes in banks--"potentially thousands of banks"--and for the FDIC to temporarily insure all non-interest-bearing deposits and new senior debt issued by banks and thrifts.

It's similar to the approach adopted by the major European countries over the past few days, with the main difference being that no European country has thousands of banks. That seems like it might be a big deal: Pouring capital into thousands of institutions is a very different business from selecting a few banks that need help, buttressing their balance sheets, and replacing their management (what the UK has done). But there's probably no way Treasury could just recapitalize a few big banks and leave the rest of the industry to its own devices. Which inevitably complicates things here.

What I'm still wondering, though, is why the heck this took so long. I had a long talk this afternoon with Spencer Bachus, the ranking Republican on the House Financial Services Committee, and he said that he and other members of Congress from both parties had suggested alternatives like direct recapitalization of banks and increased deposit insurance as far back as September 18, when Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke first came up to Capitol Hill to announce that the economic world was going to end unless Congress did something fast. But Paulson resisted these suggestions in favor of his mortgage-security-purchasing plan, and continued to resist them until ... he finally changed his mind.

Update: More detail from the WSJ:

The U.S. government is set to buy preferred equity stakes in nine top financial institutions as part of its new comprehensive plan to tackle the credit crisis, according to people familiar with the situation. It's unclear how much would be invested in each institution. The move is designed to remove any stigma that might come with a government investment. Not all of the banks involved are happy with the move but agreed under pressure from the government.

Maybe it's just because I watched The Incredibles yesterday (you know, "if everybody is special, then nobody is"), but I don't know that I like this approach. Shouldn't the whole point be to put money into, and punish the shareholders of, the institutions in trouble while letting the healthiest fend for themselves and reap the eventual rewards?

Update 2: Felix weighs in, and has similar worries about Paulson's unwillingness to entirely bite the bullet here:

I'm quite sure that Paulson hates the fact that he's semi-nationalizing the banking system. But he needs to get real and accept it, rather than trying to brush it under the carpet. Otherwise he's putting hundreds of billions of taxpayer dollars at unnecessary risk.

Update 3: The details are out.

I have been busy writing what we like to call "market wrap" stories. Here's the one I wrote today. And here's the one from Friday. I'm doing my best to come up with new ways to say that people shouldn't read too much into what the Dow does on any particular day while, at the same time, writing a story about what the Dow did on that particular day. If you've got ideas, send 'em my way.

UPDATE: I wrote another.

Barbara!

I've been reading the speech Barack Obama made on the economy this afternoon, plus his new Rescue Plan for the Middle Class. The speech ends with an eloquent farewell to the age of easy money:

We've lived through an era of easy money, in which we were allowed and even encouraged to spend without limits; to borrow instead of save.

Now, I know that in an age of declining wages and skyrocketing costs, for many folks this was not a choice but a necessity. People have been forced to turn to credit cards and home equity loans to keep up, just like our government has borrowed from China and other creditors to help pay its bills.

But we now know how dangerous that can be. Once we get past the present emergency, which requires immediate new investments, we have to break that cycle of debt. Our long-term future requires that we do what's necessary to scale down our deficits, grow wages and encourage personal savings again.

Well said. If President Bush had said something like that in September 2001, instead of telling Americans that it was our patriotic duty to go to Disney World, we'd probably be in far less economic trouble right now.

The new proposals Obama outlined today, though, are at best only tangentially related to these long-term priorities. They are:

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When last I checked, the Dow was up 6.9% and the S&P 7.5% in reaction to Paul Krugman getting the economics Nobel before trading began this morning. In London the FTSE ended the trading day up 8.26% and in Frankfurt the DAX was up 11.4%.

What? You say there are other possible reasons for global markets' surge? Something about a trillion-euro bank rescue? Whatever. "Krugman rally" sounds better.

I do worry, though, that this rally may be short-lived. It's partly just that I think the mechanics of rescuing banks in both Europe and the U.S. will turn out to be far more fraught than anyone seems to be considering at the moment. Remember, we still don't have a clear picture of what Treasury plans to do in the U.S.

Mainly, though, my concern is that we can learn very little about the future direction of the market from which direction stocks moved in today. But we can learn a lot about the future volatility of the market from the volatility today. Today's big jump presages more big moves. Which could just as easily be down as up.

Also, I know I really ought to be citing credit market measures rather than stock indices. But bond markets are closed today in the U.S. Plus, I'm starting to wonder whether LIBOR, the much-watched measure of what banks charge to lend to each other, might be totally broken because banks are now just borrowing from the Fed and other central banks rather than from each other.

I have an article in the new Fortune magazine, which has a cracked GE lightbulb on the cover. It begins:

On Nov. 21, 2002, just two months after leaving Princeton University's economics department for a spot on the Federal Reserve Board, Ben Bernanke gave a speech in Washington on the topic of deflation. At the time, stock prices had been falling for almost two years straight, inflation was just 2%, and there was widespread worry that it would drop into negative territory. The specter of Japan, beset for a decade by falling prices and economic stagnation, was on the minds of many. In his speech, Bernanke even brought up a far worse deflationary spiral - the Great Depression.

But his intent was to reassure. "I am confident that the Fed has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief," Bernanke said. Quoting economist Milton Friedman, he described one such policy instrument - a tax cut accompanied by mass Federal Reserve purchases of Treasuries - as equivalent to a "helicopter drop of money."

The helicopter line got a lot of attention, and critics have derided Bernanke as "Helicopter Ben" ever since. But the most important takeaway from his speech was that economists and central bankers had things pretty well figured out. They knew how to prevent a depression - and they had the "tools," a word Bernanke used a lot. Read more.

I was writing for Fortune as sort of a trade for Andy Serwer and Allan Sloan writing TIME's cover story a few weeks ago. Basically, we're experimenting with the barter economy here at Time Inc. just in case the financial one ceases to exist.

Almost a decade ago, I was working on an article for Fortune about the then-current state of economics. The narrative I settled on was one in which in the late 1970s and early 1980s, Cambridge, Mass., had been the birthplace of a new economic mainstream:

This was the context in which the young scholars of Harvard and MIT learned economics in the late 1970s and early 1980s. Keynesian macroeconomics was dead, but nothing had sprung up in its place. Microeconomics, meanwhile, had moved away from the dead certainties of the past into a much more interesting thicket of research possibilities. The mathematical models that had come to form the basis of academic economics were shifting from general equilibrium, in which everything worked out for the best, to multiple equilibriums, in which it might not. "That was kind of a golden age for economic theorizing," says Krugman.

Krugman is of course Paul Krugman, winner of this year's Sveriges Riksbank Prize in Economics in Honor of Alfred Nobel for some of his golden-age theorizing. He's the first of the 1970s/1980s MIT/Harvard crowd--a group that includes such familiar-to-noneconomists names as Larry Summers, Ben Bernanke, Frederic Mishkin, Greg Mankiw and Glenn Hubbard--to win a Nobel. And that's pretty much what one could have predicted back in 1999. In fact, I distinctly remember Mankiw predicting it, although, sadly, I didn't put that into my article. Here's what I did write:

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