Baby, bath water.

McCain talks of the honest laboring man as the strength of America. No doubt he is, but he wants to buy a house (which requires a mortgage), not pay for everything with cash (which requires credit cards), have a job (which requires a business that is very likely dependent on loans) and buy big-ticket consumer items he can’t pay for upfront (which requires car loans, etc.). Freeze up all those sources of credit, and economic life as we know it ends.

Already, the panic has sent investors to the safety of Treasury bills, leaving less capital for consumers and businesses. Few realize how much businesses rely on short-term loans for routine operations like meeting payroll, and how that most characteristic American entrepreneurial figure — the guy with a bright idea he works out in his garage — depends on investment and loans.

Conservatives who make so much of their knowledge of the markets would ordinarily be the ones to point this out, but they have a blind spot for the market’s failures. The financial system is subject to periodic panics that, if left to work their course, will wreak economic havoc out of all proportion to reason. They take down good institutions along with the bad.

If it works, the Paulson plan’s most worthy accomplishment will be saving innocent bystanders from the wildly swinging tail of the blind and panicked financial beast.

– Rich Lowry.