People rallying in front of the NY Stock Exchange on Thursday.
People rallying in front of the NY Stock Exchange on Thursday. - 
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Scott Jagow: Now, let's bring in Edward Carr. He's the business editor at the Economist magazine in London. Edward, what do you think about this Republican alternative of insurance?

Edward Carr: It strikes me at first glance as being quite a difficult thing to do. I mean, you think about insurance. The idea about insurance is that you spread the risk, and that the people who aren't in trouble help out the people who are. The problem with this crisis is everybody's in trouble. So if you get the industry to pay its own premiums, I think you are just moving money from one institution to another. And the fact is that everybody's short of money. Pretty much every plan's got its problems. This is the plan we've got right now and there really is urgency. If you look at the credit markets right now, they register panic and alarm every time it looks like this plan is not going to go through.

Jagow: But the Fed has already established several instruments, the borrowing windows, things that are available to these banks and they're not using them. So why do we think that paying $700 billion for these assets is going to make a difference?

Carr: Yeah, you're right. The Fed has been trying for the best part of a year along with other central banks to try and unblock the credit markets. That hasn't worked. We saw the collapse of Lehman, the near collapse of AIG and we've just seen the collapse of Washington Mutual overnight.

Jagow: What does the collapse of Washington Mutual tell you about the situation?

Carr: I think it tells me that Bernanke and Paulson aren't bluffing here. Some people think that this is all a big game to try and get Wall Street to bail itself out. I think that that tells you that isn't really the case. There is a real problem here. I think the political problem for Bernanke -- who is, of course, a student of the Depression; that's his great area of expertise -- is that he's seen in previous crises that the banking usually needs help. Nousuallyly, as in Japan for instance, they wait for years. They wait for the banking system to be kind of a smoking ruin before they start doing this kind of stuff. Well, these guys are coming in early. They are trying to get ahead of the banking crisis. That means that, although things like Washington Mutual tell you that a lot of bank failures are going to happen one way or another, that hasn't happened yet, and so to some extent everyone else is having to take it on trust. And that makes the politics even harder.

Jagow: All right, Edward Carr, the business editor at The Economist, thanks so much.

Carr: Thank you.