Arnold Kling is offering pointers and analysis with almost daily briefings. Some highlights.

1a. We need some perspective. From Dec. 5:

I am inclined to disagree with the last paragraph [" ...This may not be 1929. But it's a good bet that it's way more serious than the junk bond crisis of 1987, the S&L crisis of 1990 or the bursting of the tech bubble in 2001."]. The tech bubble created trillions in illusory wealth. I am pretty sure that the amount of illusory wealth in the housing market is smaller.

1b. But we also need some perspective! Dec. 7: Aggregate home equity is just above 50%, the lowest figure on record (data to 1945).

2. There's potential for serious consequences in banking:

Bank capital standards may be counterproductive at this point. I worry about this scenario: Every bank has to mark down some of its securities, and this means that they need more capital. So they all start selling securities, which means that the prices go down, which means more markdowns, more need to raise capital, etc. I'm not sure that such a vicious cycle truly can occur, but it seems like a possibility worth worrying about.

3. But the best option is not a regulatory intervention that forestalls the inevitable, but a market correction.

The way to stop it, of course, is to loosen up the capital regs for a bit, under the assumption that the banks really are solvent if the market is given time to recover in an orderly fashion.

[...]

I would like to see the subprime securities issue resolve quickly. Mark down those securities, get through the foreclosures as expeditiously as possible, etc. My thinking is that whatever spillover damage that subprime foreclosures are going to have on house prices is something I'd like to confront soon and put behind us.

The political economy story behind the Bush plan is intriguing. I've been thinking about this a bit this past week and I still don't have an answer I'm comfortable with. Part of it is we don't know the types of voters who are in these 1.2m ARMs. Another part of the problem is we can't lump homeowners together here a la Fischel. Is it divide and conquer? Is it a Rove-like moderately awful solution in order to cut off a drastically awful one? A political bargain a la steel tariffs? Is it old fashioned capture? I doubt it, but Kling hints that the financial industry trade association is behind the splitting of ARMs into three categories. As Steve McCroskey would say, "Looks like I picked the wrong week to stop sniffing glue!"