The Fed steps in and rescues insurance giant AIG, which leads to speculation about whether or not it would be wise to create an agency on the Federal level that would be responsible for these kind of bailouts. There are fears, though, that is there are more failures the Fed could run out of rescue cash. Still, perhaps the bailout strategy will be the wrong one in the end, as argued by David Leonhardt in today's New York Times. Leonhardt says we should look back at the bailout of Chrysler, and what that meant in the long run for the American automobile industry...

But if you take a moment to think through the full Chrysler story, you start to realize that it’s setting a really low bar. The Chrysler bailout may have saved the company, but it did nothing, after all, to stop Detroit’s long, sad decline.

Barry Ritholtz — who runs an equity research firm in New York and writes The Big Picture, one of the best-read economics blogs — is going to publish a book soon making the case that the bailout actually helped cause the decline. The book is called, “Bailout Nation.” In it, Mr. Ritholtz sketches out an intriguing alternative history of Chrysler and Detroit.

If Chrysler had collapsed, he argues, vulture investors might have swooped in and reconstituted the company as a smaller automaker less tied to the failed strategies of Detroit’s Big Three and their unions. “If Chrysler goes belly up,” he says, “it also might have forced some deep introspection at Ford and G.M. and might have changed their attitude toward fuel efficiency and manufacturing quality.” Some of the bailout’s opponents — from free-market conservatives to Senator Gary Hart, then a rising Democrat — were making similar arguments three decades ago.

Instead, the bailout and import quotas fooled the automakers into thinking they could keep doing business as usual. In 1980, Detroit sold about 80 percent of all new vehicles in this country, according to Autodata. Today, it sells just 45 percent.

Bingo. Capitalism, at it's best (and worst) is about creative destruction. Businesses fail, new businesses arise. Jobs are lost, new ones are created. America's wealth and power is built on the fact that we are, usually, willing to weather the capitalistic storm confident in the knowledge that we will come out the other side with new, more innovative solutions to problems, selling new products, experimenting with new technologies, and beating our competitors to the punch. Too much government intervention can lead to the stifling of such innovation, with negative consequences for the future health of our economy and our nation.

Robert J. Samuelson explains why Wall Street's business model since 1980 is no longer working, and why it was doomed to fail.

There is good economic news, however, as oil prices continue to fall.

In politics, the red states are getting redder, while the blue states are getting purpler.

This is partly because the Obama people are off their game.

Meanwhile, General David Petraeus hands over command in Iraq to his chief deputy, while Petraeus moves on to command our forces in the entire region. Ralph Peters celebrates Petraeus as victorious leader.