And not just any band of leveraged speculators: handpicked members of the private equity elite operating with cheap government credit, and insured against losses!

Others have criticized the Geithner bank rescue plan’s economic aspects in detail; no need to repeat all that here. I’ll just say that it strikes me as a very bad idea to set the thing up so that the government takes the lion’s share of any losses and the private investors, the lion’s share of any gains (if any). And it strikes me as fantastic that the dominant problem with the credit system is some underpriced (or unpriced) “legacy” assets, and this program, by pricing them, will deliver us into some promised land. (Gotta love the use of the word “legacy”: it’s also how Ivy League admission officers refer to the dim offspring of alumni and major contributors.)

Surely pricing is part of the problem. But pricing the unpriced won’t do anything to address the underlying economic fact that too many people owe more money they can pay, and their lenders are hurting for it. Complex securities did add a few layers of complexity, complexifying the problem, but the fundamental issue will remain even if the mysterious toxic assets are priced. Toxins aren’t rendered any less toxic by naming them.

(By the way, the buzz is that some banks may participate in the bailout scheme, borrowing money from the gov to buy their own bad assets at ridiculously inflated prices. That renders them technically solvent, with Washington holding the bag. Nice.)

But let’s leave all that aside for the moment. Much of the debate is about whether the Geithner plan will “work.” But this use of “work” isn’t defined. Does it mean “keep the financial system from imploding, so that time will heal the wound”? Does it mean “take the junk off the banks’ books so they can quickly start lending again”? Or what, exactly?

It looks like the intention of the Geithner scheme is to try to restore the status quo ante bustum, with private equity and hedge fund guys running around remaking the economic landscape with big gobs of borrowed money. Is the ultimate point of this plan to bring back the world of 1999 or 2005, when easy credit fueled speculative bubbles and overconsumption? That doesn’t seem like a live option.

There’s a more sinister possibility: the bailout will be funded by an austerity program. That is, all the trillions being borrowed to spend on bailouts and stimuli will save the financial elite, but at the costs of a fiscal crippling, and instead of raising taxes on the very rich to pay down the debt, there will be deep cuts in civilian spending. With the economy remaining weak, employment would stagnate and real wages fall—a prospect that would, by restricting consumption and therefore imports, bring the U.S. international accounts close to balance. Then we wouldn’t be dependent on Chinese capital inflows anymore—and the overprivileged wouldn’t have to give up lunching on $400 stone crabs. Is that the hidden agenda? It is coherent, if cruel.

U.S. workers are certainly used to long-term declines in real wages: the average hourly wage, adjusted for inflation, is almost 10% lower than it was 36 years ago. But the blow of that fall was significantly softened by the availability of easy credit, which allowed people to maintain the semblance of a middle-class standard of living. What would wage cuts without easy credit look like? What kind of retooling would be necessary for an economy now dependent on high levels of consumption, and a society dependent for legitimation on the same? Hard to say, but we should start talking about it.

It would be a nice Nixon-in-China turn, for a Democratic president elected on high “progressive” hopes, to preside over something like an IMF structural adjustment program applied to the U.S. It could be portrayed as a necessary sacrifice for the common good. In fact, we can already see the outlines of a liberal apologia for austerity on the Nation’s website.