According to this weird bit of popular science, a group of monkeys hitting typewriter keys at random will eventually type a Shakespearean play. Why? Why Shakespeare? Why not Samuel Beckett? His plays are far shorter and his unique brand of surrealism jibes perfectly with the simian sensibility and playfulness. Well, nobody really knows. Only scientists believe such weird gibberish anyway. Real people know that monkeys are cute, but dangerous, and so they avoid operating heavy machinery and typewriters around them... just in case.

But scientists and monkeys have a long and complicated history of competing against each other, with neither side really owning much of an edge. Sometimes the scientists win, and a monkey is strapped onto a rocket and blasted into space for no real purpose other than as a show of brute force. Sometimes the monkeys win, and you get articles like this one from NewScientist:

THE BLUNDERS THAT LED TO THE BANKING CRISIS
- Sep. 25, 2008, NewScientist

"Banks are vulnerable to liquidity crises because they borrow money that may have to be repaid in the short term, and use it to back up more lucrative longer-term investments. If depositors withdraw their money and other lenders refuse to lend the bank the funds they need to replace it, the bank ends up in trouble because it can't easily turn its long-term assets into cash to make up the shortfall."

This paragraph alone explains precisely what is wrong with this Bailout situation, why so many misunderstand it, and why no matter what happens this weekend the bill is ultimately doomed to failure.

Embedded in that paragraph is a key perception that is simply wrong: "[Banks] borrow money that may have to be repaid in the short term, and use it to back up more lucrative longer-term investments."

That presumes that those "longer-term investments" are, in fact, always lucrative, an assumption that is absurd on its face, yet no one seems to notice or to be able to grasp it. This is not a liquidity crisis. Long-Term Capital Management was a liquidity crisis. LTCM basically over-leveraged on good assets and were caught out when liquidity temporarily went away. But this is a debt crisis.

Simply put, there is too much debt, over-leveraged, and supported by too little real income as the assets backing this debt deflate. But people are mistaking this deflation for a lack of liquidity. 

That is chief among the reasons why any bailout will ultimately fail. The talk on Capitol Hill this week was about credit availability and getting credit into the peoples' hands. But they are forgetting the demand side. If people are not willing to take on more debt it doesn't matter what bailout or acronym is created to make it available. Meanwhile, the fantastic hope among bailout supporters is that we can construct a tool, an agency, a holding company, whatever one calls it, that will allow us to push forward the bill, to move it on down the line. Always move it on down the line.

This just in:

NEW YORK (CNNMoney.com) -- Washington Mutual (WM) chief executive officer Alan Fishman could walk away with more than $18 million in salary, bonuses and severance after less than three weeks on the job, according to the terms of his employment agreement.

The hits just keep on coming don't they? That's no way to keep the screws turned on this bailout bill.

A Nixonian Moment

There's an unsettlingly familiar feeling about Paulson in the White House on bended knee, something I can't quite put my finger on. It's similar to the feeling you get when you realize you might have just crossed the line from a fun misdemeanor to a horrible felony, although that doesn't quite capture it. No, it's strangely Nixonian.

Ah, and now I remember, here's why: In the final days of the Watergate scandal, just before he resigned, Richard Nixon summoned Henry Kissinger to the oval office. They talked for an hour-and-a-half before Nixon cajoled Kissinger into dropping to his knees to pray with him.

I was wondering why that episode rings so familiar today, and then it hit me... Hank Paulson was assistant to John Ehrlichman, Nixon's White House Counsel, from 1972 to 1973. Quad erat demonstrandum.