With the support of the Chairman of the Fed, Ben Bernanke, Treasury Secretary Hank Paulson laid out a two pronged attack on what may be the most severe financial crisis this country has faced since the Great Depression. First, the Treasury will acquire $700 billion of mortgage backed securities. That's the short term crisis fix. Second, he called for "a modernized financial oversight structure". The full implementation of this plan calls for a lot of Congressional work, much of which the wing nuts of both parties will dislike.

Time to get off the rhetoric and get on with the job. There are two issues: How to fix the immediate problem, and how to prevent it from happening again. The current problem takes lots of taxpayer dollars to fix. That's a bailout. We don't have to like it, but we do have to do it.

Avoiding a repeat takes "a modernized financial oversight structure". That means a re-regulation of the financial industry that fell by the wayside during the last 30 years. Call it 'big government' if you like. We don't have to like it, but we do have to do it.

There's been a lot of talk about 'let the insurance companies fail'. Among other things, those insurance companies provide a lot of pensions. Failure means the end of those pensions. Do you really want that?

For the Treasury to buy up those mortgage backed securities it's must sell a lot of T Bills. That in turn takes money out of the economy and burdens the taxpayers for a long time to come. That's why Paulson needed Bernanke at the meeting. Ultimately, it will be Bernanke's responsibility to print more money. Trying to keep the economy functioning is a balance between inflation and recession. For awhile we may have both. Again, we don't have to like it, we just have to do it.

At this point, only the contours of the solution are known. The devil will be in the details. Time speculates on some of the implications here and here.

The full text of Paulson's statement is here. It's well worth reading. Now let's see how many politicians want to tell us the painful truth.