The suggestion about lenders having a stake in the entity is both crucial and new - at least new to the Bush administration. (A number of observers, including me, suggested such an entity at the beginning of the crisis in Aug. 2007.) Forcing banks to have skin in the game alongside taxpayers makes it less likely that financial institutions will try to screw the taxpayers. Having the government involved also provides adult supervision in the setting of the ground rules.

Why then, didn’t,the Bush administration put forth this key provision before the very end? Someone must have suggested it - after all, it’s little more than common sense. If it’s a good idea in the full teeth of the crisis, why wasn’t it a good idea at the outset? That it will be the Obama administration that launches this entity implies that the Bush administration was loathe to push for the self-policing aspects of having the banks provide capital.

And then, there’s the end-of-an-era aspect of plan. Whether it’s called a “bad bank” or “aggregator” or “RTC II,” the new entity represents an explicit admission that no one else is willing to accept trillions of dollars in credit instruments that 2 years ago were treated as interchangeable with money.

Thanks to the ingenuity of Wall Street’s rocket scientists, so-called structured credit products proliferated wildly during this decade, backed by mortgages and other obligations (or by other credit instruments that in turn, were backed by assets). With credit rating agencies blessing these products as AAA, these instruments were treated almost as money, and provided much of the liquidity that spurred the illusion of wealth creation during the bubble years.

Now, pension funds, hedge funds, endowments and financial institutions that confused money and credit have discovered -- in the most brutal fashion -- that the value of anything deemed to be money-good rests entirely on the willingness of someone else to accept it. With no one but the government willing to accept these assets, this former currency will be retired as scrap. RIP, money as credit.

Unfortunately, the story does not end there. While officials cross their fingers that these disgraced credit instruments will remain quarantined, this nuclear waste could still leach into the financial system - particularly if the prices paid are above market (whatever that is!). The scale of this pollution is such that the sum total of government guarantees and obligations may impact the value the rest of the world puts on the US dollar, the linchpin of the global financial system.

In the end then, money and credit do turn out to have some something in common: the value of either depends entirely on the trust of strangers.