Zipcar lifts the burden of car ownership and gives me what I want: a convenient way to get to the outlet mall and back. I don’t need to take adult ed classes on auto maintenance nor turn car ownership into a hobby.

Zipcar does for cars what The Cloud does for computing. It divvies up labor and lets specialists deal with issues with far more expertise and much better economies of scale than distributed ownership. We don’t need to know how to change the air filters or set up MySQL to drive to the beach or post a photo album.

On top of efficient division of labor, cloud computing/commuting also distributes risk appropriately. This means that the inevitable lemon car or DOA hard drive is handled as part of a larger batch rather than dumped, hot-potato-like, on individual hapless victims. This also means that consumers, in aggregate, make better choices. When presented with two hard drives — one of which is $10 more than the other, but also 5% more likely to fail — an individual is likely to go for the cheaper option and roll the dice. The cloud, on the other hand, is more likely to make rational cost-benefit analyses. An sysadmin who buys 100 hard drives knows that 5% failure rate means 5 dead drives, not a random gamble.

This kind of logic extends to all sorts of capital goods, including housing. Putting so much capital into a single investment strikes me as somewhat feudal in an era when capitalism argues for diversification and specialization (that is: buy REITs and outsource your real estate management).

What I like best about the cloud approach is that it’s eminently capitalist while capturing the flavor of socialism. We pool our resources, but we pay for what we get within a robust marketplace. (Zipcar will have really succeeded when they face a viable nationwide competitor).

Now I don’t believe that we should completely alienate our cars/condos/computers to some vendor and end up at its mercy. Even as I keep more and more of my stuff on Google and other clouds, I also want the option of backing it up on my own personal hard drives. And yes, some people take deep pleasure in ownership, tinkering with the car or repainting the shed. (I myself just built a new computer this week). But for those of us who aren’t expert mechanics, programmers, or construction contractors (nor friends with one), trustworthy cloud services can help mitigate the risks associated with ownership while tapping into expertise not otherwise accessible.

And yet after several years of virtuously foregoing the clothing dryer, I’ve concluded that spending my hours hanging up wet laundry is a backwards step in evolution; we cannot build a modern economy on stone age technology. Clean, sustainable power to fuel a healthy an growing economy — one that lets us all enjoy the amenities of technology, including the dryer — is the only realistic way forward. If we are to redeem our prodigal dissipation of the riches that our ancestors bequeathed us in the form of fossil fuels, it is to make that downpayment on this future way of life.

The answer, obviously, is cyberspace. As our first Web-savvy President, Barack Obama should put his Presidential Library online. If his Transparency and Open Government Initiative succeeds, most of the Library will already be built by the end of his term. Then it’s a matter of working with his brilliant Web team to design, curate, and future-proof the space.

Then instead of raising money for one library, put the funds into the public library system nationwide, so all 50 states benefit. That would be a legacy all Americans can be proud of.

It has become obvious that, among recent technological advances, no field has moved so far so quickly as the world of high finance, specifically, the world of complex derivatives. George Soros testified in 1994 to the House Committee on Banking, Finance, and Urban Affairs, “We use derivative instruments to a much lesser extent than generally believed, very largely because we don’t really understand how they work.” Both he and Warren Buffett restricted their dabbling in derivatives after being seriously burned.

In his 1994 quote Soros didn’t mean that he didn’t know the role derivatives play in the market. Rather, he was pointing out that — like an iPod, or a jet engine — it’s quite difficult to figure out what is going on under the hood of any particular derivative instrument. In other words, they are magic.

Which is not to say that widespread understanding can’t catch up to complex derivatives to make them safer as bona fide financial instruments. Many derivatives have genuine value: consider weather-based derivatives as a hedge for farmers. A heap of regulation to ensure transparency when useful and block abuse when it’s not would help close the gap between financial technology and magic.

(That channeling, by the way, is called regulation.)

So when Alan Greenspan argues that the current meltdown is due to “greed” (Taking Hard New Look at a Greenspan Legacy, NYT), warning bells should go off that this guy is trying to get himself off the hook.

The whole point of regulating markets is to manage systemically what we cannot count individuals to do wisely. Mr. Greenspan is no fool. He knows that, and he knew it at the time when he was unscrewing the safety latches that prevented Wall Street from venting all that red-hot greed into the unprotected sectors of our economy. And in deregulating exotic derivatives, he stood by while Wall Street created a risk-laundering scheme of epic proportions.

If the CRA were the main cause of this crisis, we would have a bad, but manageable, collapse of one sector of the economy. An important and big one, yes, but not the entire banking system and everything around it. The real culprit lies with Wall Street’s numerous financial “innovations” over the past decade. We are in crisis not because of some bad loans, but because those bad loans (a) were sliced into so many little pieces that to find them all would be like picking out molecules of poison from a reservoir; and (b) they were leveraged so hard, so far beyond their reasonable limits, that small disruptions would cause enormous calamities.

It is as if an entire skyscraper were built on the foundation of a single matchstick. And the matchstick has burned.

I am waiting for a responsible investigative team to tell us the real story of this meltdown: how Wall Street laundered risk through a combination of opaque derivative products and sweetheart bond ratings to turn lead into gold. The story works quite a bit like disposing of stolen goods: first you need a way to disguise your source, then you need a fence willing to “certify” them as legit. The main difference is that the criminals in this story used fancy mathematics, not slim jims, to execute this massive heist.

So where to turn for helpful information? Well, the sense I’m getting is: while many experts know and agree on what’s happening (collapse of mortgages and mortgage-backed derivatives, collapse of other lines of credit, credit crunch across the board), we are in uncharted territory as far as what happens next and the consequences for our national and global economies. Here are some links to articles that might be helpful based on looking around quite a bit:

• Post today by Dean Baker in TPM : “The main cause of the economy’s weakness is not insolvent banks and lack of credit; it’s the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble’s partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero. With much of this equity now eliminated by the collapse of the bubble, many families can no longer sustain their levels of consumption. The main reason that banks won’t lend to these families is that they no longer have home equity to serve as collateral. It wouldn’t matter how much money the banks had, they are not going to make mortgage loans to people who have no equity.”
• Paul Krugman — particularly Crisis Endgame (”This flight to safety has cut off credit to many businesses, including major players in the financial industry — and that, in turn, is setting us up for more big failures and further panic. It’s also depressing business spending, a bad thing as signs gather that the economic slump is deepening.”).
• Pretty serious macroeconomic analysis from Brad DeLong, concluding, “there is now no time for tolerance of the three objections to this analysis and this plan of action, roughly: (1) it’s immoral, (2) it’s unfair, and (3) it can’t work in the long run.”
• RGE Monitor — Financial intelligence company with limited free membership during this crisis. My friend Jarrett highly recommends Nouriel Roubini’s Global EconoMonitor, e.g.
• The Worst Financial Crisis Since the Great Depression — caution — reading this will be like jumping into icewater
• Harsh assessment of the original Paulson/Bernanke Bailout plan

There’s much more out there, but my own conclusions, in trying to keep things simple in my own head, are that (a) we have been in a bubble since the close of the Clinton years; (b) Greenspan refused to pop the bubble, instead superinflating it; (c) exotic new financial products multiplied the force of the bubble many times greater than normal; (d) the final popping of the bubble will have real and psychological effects that will crash the economy to below where it “really” is right now.

There’s nothing that policy and leadership can do, now, about (a)-(c). We can only hope that wise leadership will steer us away from (d) if at all possible…

By including unacceptable terms — most notably, non-reviewability — Paulson et.al. were perceived as overreaching. Even though the Administration quickly gave up those terms, the mistrust was already sown, especially because the proposal echoed the earlier “trust me” terms of the Iraq war authorization.

Maintaining a strong working relationship with the other party in a negotiation is critical to successful outcomes for both parties. In this case, by playing chicken with Congress, the Administration may have precipitated the worst outcome for both sides: failure to reach an agreement. Let’s hope our economy can survive the results.

Update: More (and better) analysis of this situation from a negotiations POV from my friend and colleague, Erin Ryan, at the Harvard Negotiation Law Review Blog.

• Explain, in simple English, what is happening on Wall Street, and how that affects Main Street;
• Use graphics and Ross Perot charts to illustrate rather than use words;
• Outline the options, and the pluses and minuses of each one in as non-partisan way as possible;
• Do it in the calm, serene, and non-partisan manner in which Obama excels — and which the citizenry really need right now.

This would:

• Assert high-minded leadership at a time when everyone else is embroiled in politics;
• Demonstrate Obama’s belief that we are mature and intelligent;
• Spread like wildfire — because we are all desperate for answers, and no one — including the MSM — is giving us any.

Obama has run a spectacular, Internet-infused grassroots campaign for the Presidency. I’m ready to see how that translates into leadership and governance.

An impaired mortgage security might yield 65 cents on the dollar if held to maturity. But because the market is so illiquid and suspicion about mortgage values so high, it might fetch just 35 cents in the market today. Recapitalising banks would mean paying as close to 65 cents as possible. Those that valued them at less on their books could mark them up, boosting their capital. On the other hand, minimising taxpayer losses would dictate that the government seek to pay only 35 cents. But this would provide little benefit to the selling banks, and those that carried them at higher values on their books could see their capital further impaired.

If we want DC to drive a hard bargain and get taxpayers maximum value, we want them to lowball for $.35. But that would be self-defeating, as the economy would likely seize up. If we go for the $.65, we might be overpaying for them, rewarding Wall Street for its greedy stupidity at taxpayer expense.

There’s a spectrum here between what is “fair” and what will “work” — and what’s worse, we can’t know if/when we cross either threshold. It’s possible, as The Economist suggests, that $.65 will NOT work — AND yet still be perceived as unfair.

The thing that’s impossible for most American taxpayers to swallow with corporate welfare is exactly the same as for individual welfare: you (the taxpayer) will personally pay a certain amount of money for an uncertain and socially distributed benefit. It’s hard enough to convince Americans that we are our brother’s keeper when it comes to getting homeless people we can actually see off the streets with programs that we can understand (if not agree with). The bailout wants us to enact that same value with people who aren’t that sympathetic using mechanisms that even most economists are having a hard time articulating.