True to type-cast, Mr Obama went on, ruefully, to ponder the inadequacies of central banking as that old reprobate Hamilton had envisioned. Stepping from the old Federalist's shadow and with a nod to Mr Bloomberg, he urged all Americans "to adapt to keep markets competitive and fair." Government should neither stand in the way of innovation nor turn back the clock to an older era of regulation but "rebuild trust between investors and lenders."  The prudent path to this end therefore is regulatory reform that discourages industry lobbying and encourages "internal risk management" among market participants to the extent each insures the Fed's exposure to "dislocations in our economy." Mr Obama was careful to balance his enthusiasm for modernization with immediate fiscal relief for Main Street households.

While Mrs Clinton, dear Hillary, trembled, so overcome by indignation and predjudice was she. Her esteem for Mr Rendell's ingenious plans to contain foreclosures and to defend homeowners is palpable even in print. Mrs Clinton made several startling claims to emphasize her dread of the crisis and her sympathy for America's hardest working citizens. "I called for immediate action and laid out concrete proposals to prevent foreclosures and help states hard hit by this crisis," she like an old Democrat reminded. "I put forward an aggressive plan for a 90-day moratorium on all subprime foreclosures and a voluntary five-year freeze on interest rates for all subprime mortgages." Indeed Mrs Clinton made no effort to conceal her intention to restore decrepit powers of New Deal institutions.

Happily for the American electorate the outcome of the presidential election is unlikely to thwart Congress. Nearly all the relief the candidates propose has already been passed between the chambers in the forms of the FHA Modernization Act of 2007, the Expanding American Homeownership Act of 2007, and the Home Ownership Preservation and Protection Act of 2007. The HOPE for Homeowners Act of 2008, engineered by Mssrs Frank 'n' Dodd, then completes a set of crisis management theories worthy of Hoover. Just as Mssrs Bush, Paulson, and Bernanke had planned.

Q: Sir, what about the hedge funds and banks that are overexposed on the sub-prime market? That's a bigger problem. Have you got a plan?
THE PRESIDENT: Thank you.

Announced 19 March by the pair of legislator-stenographers, the HOPE for Homeowners Act creates a new program within FHA to formalize revisions to mortgage guidance of OFHEO conforming jumbo loans. New FHA-insured mortgages offered to qualifying, distressed homeowners by FHA-approved lenders will refinance "abusive loans" at a discount, whereby the mortgage principal is adjusted to fair market value and the difference in values is securitized. The debt securities are to be auctioned at open market. Programming and auctions will be administered by a Board comprising the secretaries of HUD (Jackson) and Treasury (Paulson) and the chair of the FDIC (Bair). The official role of the Federal Reserve Board and its "Primary Dealers" is not yet disclosed, doubtless to Mr Obama's dismay. Furthermore, participating homeowners are required to share equity with FHA and vested only after 5 years.

That cornerstone marks the unexpected face of "taxpayers' contingent liability." Even as the Bush administration and legislators insist they won't risk public funds in a bailout, the business media is much exercised in calculating billions of revenue the FRB and Treasury are lending in treasuries. Bloomberg consulted Vincent Reinhart, a former head of Fed's Division of Monetary Affairs, and Joe Mason, a former economist of OCC. Both are hostile to FRB intervention in the MBS markets. Reinhart, now with AEI, argues that "Federal Reserve Bank of New York seems to have an equity interest" in the collateral it will accept for the $29B line of credit extended to BS. However, nothing in public documentation of the deal thus far substantiate that claim, absent borrower default by 2018.

Only yesterday did Mr Obama disclose his plan (pdf) to issue, subsidize, or buy $10B of Mortgage Revenue Bonds (MRBs). State and local governments sell these tax-exempt bonds. There is no federal MRB Authority.

Mason who teaches at Drexel takes a slightly more twisted view of the FRB's proper purview. He argues to the downside of "risk mitigation" assured by congressinal legislation: Fannie Mae and Freddie Mac mandates to purchase mortgage bonds reduces the capital in reserves at a time when all borrowers' defaults are increasing. Defaults underlying a significant number FRB debt assets hurt taxpayers, because losses reduce the "dividends" the Fed pays to the Treasury from earnings on its portfolio. More important than impaired earnings, Mason like many other observers expects the "nationalizing" consequence to be endemic investors' expectation of federal reimbursement of any capital losses.

The more elliptical interpretation of "moral hazard" though is this: By appointing BlackRock Financial executor of JPM-BS assets --trustee of Fed collateral-- the central bank "is taking a step back in time to a system of direct credit" where the government decides "who gets funding and who doesn't," he said. Indeed, contrary to pervasive comparisons to the Resolution Trust Corp. S&L bailout of the '80s --FDIC insured deposits and service fees-- Bernanke's toolkit more closely resembles the Reconstruction Finance  Corp. (RFC) activities during the Great Depression. Who knew? Bernanke is widely regarded an expert on the '29 Crash and will have recognized, without publicly acknowledging, an opportunity to resurrect that government sponsored enterprise.

The RFC operated 1932 - 1957 and was funded through the US Treasury. Over the period the RFC established eight new corporations and purchased one existing corporation. For example, the Commodity Credit Corp. was incorporated in Delaware in 1933 and operated by the RFC until 1939; control of the corporation was then removed to the Department of Agriculture, where it remains today. And just before the US entered WWII, Roosevelt deliberately instructed the RFC directors to hedge gold in order to stimulate US export markets; the dollar's devaluation reached 54% within months.

The Treasury provided $500 million of capital to the RFC, and the RFC was authorized to borrow an additional $1.5 billion from the Treasury.  The Treasury, in turn, sold bonds to the public to fund the RFC. Subsequently, the RFC was authorized to sell securities directly to the public to obtain funds. RFC borrowed $51.3 billion from the Treasury, and $3.1 billion from the public. While the original objective of the RFC was to help banks, railroads were assisted because many banks owned railroad bonds, which had declined in value, because the railroads themselves had suffered from a decline in their business.  If railroads recovered, their bonds would increase in value.  This increase, or appreciation, of bond prices would improve the financial condition of banks holding these bonds. RFC lending did not count toward budgetary expenditures, so the expansion of the role and influence of the government through the RFC was not reflected in the federal budget.

There are many more parallels in execution and circumstance to be mined from RFC history. And it is surely no coincidence that the Fed appointed a trustee twice blessed --inventor of CMOs and master of vulture funds. So it is with some certain trepidation that we look forward to the next week and reflect on the closing remarks of these Democratic Party leaders.

BHO: Now it falls to us. We have as our inheritance the greatest economy the world has ever known. We have the responsibility to continue the work that began on that spring day over two centuries ago right here in Manhattan - to renew our common purpose for a new century, and to write the next chapter in the story of America's success. We can do this. And we can begin this work today.

HRC: Through it all, as President Franklin Roosevelt once said, 'We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.' But we have to translate that hope into reality. We have to translate that conviction into solutions, and if we do, we will meet the current challenges with confidence and optimism.