I’m seeing a lot of stuff coming out of the progressive blogosphere on the nature of and need for this $700 billion bailout of Wall Street that’s seriously troubling to me. I understand the skepticism in any proposal of this magnitude that comes out of the Bush administration. At the same time, Ben Bernanke is not some hack. Neither are the many economists who are, understandably, very concerned about the financial system and generally in support of some kind of comprehensive solution. This is serious business.

A lot of people are linking to this piece of commentary, which reads in part:

Ask this question — are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

This is foolishness. For one thing, it is quite a bit more difficult to get a loan these days. As someone who has excellent credit, and who has recently applied for both a mortgage and a car loan, I can tell you that the difference between lending conditions now and in 2005 is dramatic.

But what about things like credit cards and revolving business loans? Look, if we get to the point where banks are restricting basic credit lines on which nearly all Americans depend for use in daily life, then we’re beyond recession territory–we’re in depression territory. And it’s not like things weren’t heading in that direction. Last week we were all sitting there watching the crisis progress from one institution to the next. Now that the blaze on the bottom floor is under control, people are like, “but we don’t know that it would have spread to the top floor!” And it’s not as if the threat has entirely diminished. Days after the bailout was announced, the spread between interbank lending rates and rates on loans from the government is some five times higher than it would be under normal circumstances. That’s huge. And it rose on Monday and Tuesday after falling over the weekend.

That’s one reason why time is of the essence. Confidence that a comprehensive solution is forthcoming has calmed markets for the moment, but if markets begin to doubt that a firewall against collapse is going to be there, then the downward spiral will begin again. Another reason is that jammed credit markets aren’t exactly healthy for the economy. Does this need to be done this week? No, but can it wait until January? Almost certainly not.

But what about the amount? How do we know that $700 billion is needed and not, say, $500 billion or $300 billion? Well, we don’t. But if that amount is off, then the correct amount is almost certainly higher. Read this to see the scope of the problem and the challenges involved. If Paulson didn’t request more, it’s probably because he thought this is the least he could get that would make a difference.

Get the oversight in there, please. Get a bipartisan team of experts involved. Get measures in there to ensure that taxpayers get a healthy share of whatever upside there is to the deal. Make the bill a good bill. But let’s not play around here. Healthy skepticism is healthy. Blind assessments of the situation as not dire, simply because you can still use your credit card are not.

Also: Let me say one other thing. We don’t really want to mess around under the assumption that foreign central banks will continue to act as they have. Foreign lenders have basically kept the economy going this year. Private capital inflows have basically stopped, however, and may be negative. If foreign central banks give up on us, that’s it.