Steve, I had previously read reports of 3 trillion. Its the toxic assets and the inability or extreme reluctance to deal with them. Its almost as if we have to semi nationalize the banks in order to get it uprighted. According to the oxford history of the U.S. one of the problems of the twenties was that many banks were run almost like pawnshops (whatever that means i.e. with lax oversight and non professionally).
Lets hope that our best and brightest can figure a way out. I mean that with all seriousness.

We have to start with what the latest buzz word, "toxic asst" means. These are all kinds of instruments, generally mortgage backed but not exclusively, that the value is not currently known. They are not "worthless", necessarily, but no one wants to touch them until there is a functioning market which can determine their worth.

This happens in a panic. People dump assets in favor of cash.

Will we have to be on the hook for all of this in order to re-start the market? No, not at all. In fact, the real core of the market that is broken, in real estate, is what needs to be fixed first. The institutions that are holding these securities are insisting that they need to be off of their books, but that's not necessarily true. But it will take time to re-start the real estate market and get this working again.

The goal of the latest Obama "economic recovery" bill is to avoid a depression - no matter what anyone says. With some time it may indeed do that by getting the market for various securities and real estate moving again. My concern is that money is not being put where it needs to be, which is on the ground in the individuals and CDCs that will turn real estate around. That will likely have to come later.

In the meantime, the call for $4T is accurate, but we should not expect that all of it will come from the Feds. If we can get to a place where these assets can be valued, even at a fraction of face value, there will be private money. That's the working plan right now. The dice are in the air.

Erik, excellent but please define CDC. Even google didn't define it.

What was done before bailouts? And why aren't we going that historical path? Aren't bad assets being written off all the time regardless of bailouts? Under the principle "one man's trash is another man's treasure" assets are repackaged all the time.

I think if there's one group of financial sharpies we can put our faith in, it's the "bean counters at Goldman Sachs." I mean, when have they ever gotten it wrong?