When I first heard the words uttered by Congressman Darrell Issa, Republican from the 49th District of California, it made me cringe.  Day Trader.  In the world of finance, few words are as pejorative.  Day Trader.  Ouch.

These words take me back to the dotcom crash, when every moron with a computer spent his time day trading hi-tech stocks in a whirlwind market where one could never lose.  The market only went up, up, up.  Is anything sounding familiar?

The new mantra from Congress is that Hank Paulson, Secretary of the Treasury, is a day trader, not a banker.  Mind you, he was CEO of Goldman Sachs (immediately following John Corzine, New Jersey Governor and seat belt advocate), so it’s not like he was a run of the mill day trader.  He was in fact an extremely successful day trader, and became a fabulously wealthy day trader in the process.  But he was still a day trader.

I spent some time arguing with some lawprofs yesterday about whether there is, in fact, a crisis.  I posited that Paulson put on his Chicken Little costume 10 days ago and ran around screaming the sky is falling.  For the record, it was supposed to fall yesterday.  It didn’t, but I don’t see that as being a critical point.

What was curious was how the disagreement lacked the normal courtesies and nuanced language, and went right for the jugular, contrary to normal lawprof etiquette.  For example, see Jonah Gelbach’s post, Remarkably Wrongheaded, directed at Ilya Somin at VC. This is remarkably strong language. I wasn’t surprised that they would use such a direct attack at me, since I’m a practitioner, but to hurl such missiles at each other is quite remarkable.

But the disagreement shed no light.  Why is this a crisis?  Why is the world about to implode if this bailout doesn’t happen?  Immediately?  The responses were a jumble of one-word answers: libor, freezing, liquidity.  These, I was informed, were the “facts”, and if I just refused to heed the “facts”, then there was no point in discussing it further.  It wasn’t a very interesting discussion, so I saw no point in pursuing it.

But these are dots that lack any connection to real problems.  There’s no distinction between cause and effect.  There’s no comprehension of the difference between perception and reality.  It’s become an article of faith; you either believe or you don’t.  If you don’t, you just don’t “get it.”  This is a rather peculiar mindset for people whose thrust is to scrutinize and test theories, rather than jump into the mix with their eyes wide shut.

Eric Posner argued that the 777 point drop in the Dow was proof that the bailout was necessary, his argument being that the loss of value in equities was far more costly than the infusion of $700 billion into the financials.   Gelbach agrees wholeheartedly.  I think this is just plain foolish. 

The Dow swings up and down on perception, not reality.  It’s whatever the consensus of a bunch of guys in a pit think will happen in the next 5 minutes based upon their quick and dirty grasp of the world.  Would they really base this nation’s fiscal policy on a bunch of guys who routinely wear napkins on their heads at parties?  My first thought was that such an argument can only be seriously made by someone who hasn’t lived through violent market swings before, since the Dow can recover its drop in a couple of days should some other news hit the fan that makes the boys think differently.  But the $700 billion infusion is real money, not Dow points, and once spent would be lost from the nation’s coffers for real. 

Was Paulson’s predication of the destruction of life as we know it real?  Or was Paulson serving his constituency, Wall Street traders and investment bankers, and speaking of how the lack of liquidity would affect them?  The argument has been made about how this affects “Main Street,” a phrase I’ve come to loathe, but that’s just a game, since we know from chaos theory that everything affects everything else, with only the slightest rhetorical stretch. 

Not only have I yet to hear anyone explain why Paulson’s assessment of this dire emergency was correct, but how his solution will stave off catastrophe, if catastrophe is indeed looming.  Over the past 10 days, too many people have forgotten that both the “disaster” and the “cure” have come from the perspective of one man.  While Congress and the White House (to the extent anyone cares that there is a fellow called “Mr. President” living there) have spent many hours tweaking the edges, the basic plan is still right out of Paulson’s noggin.  He created the paradigm, and the rest of us are trying to see if the square pegs will fit into his round holes.

Why have we staked out country’s future on this one person, Hank Paulson?  After all, they guy is just a day trader.