I just heard Ari Fleischer say this on the Daily Show:

You can't have a country that's strong when you have 45% of the population not paying any income tax.

Does this man know anything about the history of the income tax? No, obviously not. So let me share a fun fact from the Treasury Department. In the early years of the federal income tax, which was enacted in 1913, 99% of the population didn't have to pay it. What a terribly weak country we were back then.

This isn't Ari Fleischer's first foray into profound dimwittedness on income taxes. What's up with that? Is he thinking of running for office or something?

Tonight at 9 p.m. CNBC will air a special called "The Nuclear Option," which promises "to go inside the energy crisis."

The energy crisis? Holy crap, the financial crisis is on the back burner! CNBC is returning to our previously scheduled programming—this is great news. We don't have to wait up all night waiting to see who bails out what. No late-night press release from Treasury, no round-the-clock take-over negotiations.

Let's just hope there's not a meltdown. (Please direct all elbow jabs at Justin, from whom I adapted that line.)

Barbara!

On Monday Barack Obama unveiled a less-than-compelling list of new economic proposals to combat these economic hard times. Now John McCain has his own new list, dubbed the Pension and Family Security Plan. And guess what! His proposals may be even less compelling than Obama's! The three McCain ideas I hadn't heard before are:

1. Withdrawals of up to $50,000 a year from tax-preferred accounts--IRAs and 401(k)s--should be taxed at 10% in 2008 and 2009.

2. The amount of capital losses which can be used to offset ordinary income should be increased from $3,000 to $15,000 in 2008 and 2009.

3. The maximum long term capital gains tax rate should be reduced to 7.5 percent in 2009 and 2010.

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At least it kind of seems that way. On October 6, the bond king wrote in his much-read investment outlook that the Federal Reserve should start buying commercial paper—short-term notes companies use to fund working capital. The next day, with the commercial paper market in full lock-down, the Fed said it would start a program do just that. Today the Fed announced that PIMCO, Gross's firm, would run it.

I'm not suggesting anything nefarious—it's hardly a stretch to imagine how PIMCO, one of the biggest bond shops out there, is the most qualified outfit for the job. And anyway, the Fed was thinking about buying commercial paper before Gross trumpeted the idea.

Still, I thought it worth going back and seeing what else Gross was calling for last week. Could it, perhaps, help predict our future? Here's the relevant paragraph:

A systemic delevering likely requires a systemic solution, which moves beyond cyclical interest rate cuts, liquidity provisions, or even the purchase of subprime mortgage-backed bonds. We believe that the Federal Reserve must now act as a clearing house, guaranteeing that institutional transactions clear (and investors receive) their Big Macs at the second window. They must also take another bold step: outright purchases of commercial paper. They should also cut interest rates to 1%, because we are experiencing asset deflation, and the threat of headline inflation is long past.

The federal funds rate is currently at 1.5%, after it was cut from 2% on October 8. So, yeah, going to 1% would be some more bold action.

Then there's that idea of the Fed acting as a clearinghouse for trades of financial instruments like credit default swaps—i.e., Big Macs that you pay for at one window before driving ahead 20 feet to collect. Yep, we've got people working on that too.

Barbara!

Back in September, I wrote a story about how government-mandated restrictions on executive compensation don't always work the way they're meant to. Looking at the new rules for companies that sell equity to Treasury, I'm finding, for the most part, more of the same. Let's go one by one:

Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

At first glance, that sounds reasonable (unless you're one of those wacky free-market types who doesn't think government should be setting salaries)—but I'd really like to know how we're going to define "excessive risks." Seems that could get mighty tricky mighty fast. Plus, don't executives already have a fiduciary responsibility to shareholders to not do things that threaten the value of their financial institutions? We see how far that got us.

(2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate;

As I mentioned last month, the government already has the ability to do this under Sarbanes-Oxley. It's not exactly a well-used provision.

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I mentioned in my post on Paul Krugman Monday that Greg Mankiw had told me years ago that he thought Krugman was a lock to win the Nobel one of these days. Greg said on his blog that he didn't remember that, but it that sounded like something he would have said.

Well, it turns out my friend and former colleague Peronet Despeignes had a long and interesting conversation with Mankiw in 2005, just after Mankiw returned to Harvard after his stint as chairman of President Bush's Council of Economic Advisers. And you betcha, the subject of Krugman and the Nobel came up. The Q&A was posted on Fortune's website, but Fortune's website was subsumed not long after that into CNNMoney and virtually all Web-only content--including the weekly London Calling columns I wrote when I was Fortune's Europe editor in 2000 and 2001--was wiped out. Have I ever mentioned that big media companies have at times been incredibly stupid about the Internet?

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So now the plan is out. Treasury will spend $250 billion of the $700 billion Congress gave it a couple weeks ago recapitalizing the nation's banks and thrifts, starting with nine of the biggest. That is, it will buy senior preferred shares that will pay a divided of 5% a share for the next five years and 9% a share after that, and also get warrants to buy common stock worth 15% of the value of the preferred shares. Treasury won't get any voting shares, but it will have veto power over any dividend increases or share buybacks.

Meanwhile, the FDIC says it will insure all "non-interest bearing deposit transaction accounts, regardless of dollar amount." This applies mainly to business payroll and transaction accounts; the idea is to keep business customers from fleeing banks.

And in what marks perhaps the biggest leap into the unknown, the FDIC declares that:

Under the plan, certain newly issued senior unsecured debt issued on or before June 30, 2009, would be fully protected in the event the issuing institution subsequently fails, or its holding company files for bankruptcy. This includes promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage would be limited to June 30, 2012, even if the maturity exceeds that date.

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