Yesterday, the Wall Street Journal reported that BofA chief executive Ken Lewis told New York’s attorney general in February that Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson told Lewis to keep mum about Merrill’s steep losses at the end of 2008, as well as $4 billion in bonuses Merrill intended to pay employees, lest the news spook BofA shareholders and kill the acquisition deal.

Geithner, of course, was neck deep in crafting the bailout strategies under the Bush administration, and now Towns, who heads the House Oversight and Government Reform Committee, has joined forces with Rep. Dennis Kucinich (D-Ohio), who chairs the Domestic Policy subpanel, to ask what role Geithner played in the controversial BofA-Merrill deal.

From the lawmakers’ April 23 letter to Geithner:

If Mr. Lewis’s statement, as reported by the Journal, of discussions that occurred between Mr. Paulson, Mr. Bernanke and himself is accurate, then federal officials were potentially involved in knowingly denying BOA investors material information.

The lawmakers are asking Geithner for “all documents prepared for internal use related to discussions with Bank of America and/or Treasury about compensation packages, bonuses, annual losses at Merrill Lynch, and federal guarantees against losses on Merrill Lynch assets, for the period August I, 2008 through January 19,2009,” as well as “discussions relating to public disclosure of information about compensation packages, bonuses, and annual losses at Merrill Lynch.”

A similar version of the letter went to Bernanke. And unlike the first inquiry over executive compensation limits — which Geithner still hasn’t responded to, even eight days after the requested deadline –  Towns and Kucinich are threatening to subpoena the officials for the information if they don’t get it otherwise.

The implications of Mr. Lewis’ testimony, if accurate, are extremely serious. Under these circumstances failure to comply with the Subcommittee’s request raises the prospect that we will be forced to consider compulsory means to achieve compliance with our request. However, we would prefer your voluntary compliance.

Guess the Obama honeymoon is officially over.

It’s an unlikely spot for a conservative White House that once lived and died railing against big-government interventionism. But these are lean times — and no town knows this better than Detroit.

Indeed, faced with free-falling sales, it appears likely that General Motors and Chrysler — two of Detroit’s struggling Big Three auto giants — will be merging, perhaps within days. The companies want Washington to pitch in billions to catalyze the deal — and administration officials are looking ever more likely to oblige.

It’s not quite how Adam Smith imagined things. By definition, businesses suffer in recessions. And true-market capitalism, at least in theory, exists only by the rules of financial Darwinism — the enduring concept that weak businesses must fail to make room for the strong.

Yet asked this week if including the automakers in Washington’s bailout plans encroaches too far on private markets, White House spokeswoman Dana Perino responded incomprehensibly:

Well, I think what I would point you back to is that decisions on whether or not — that these companies have in front of them as to how they will move forward and how they will deal with these changing market conditions and changing consumer preferences will be ones that they make. What we’re doing in the administration is working with the tools that Congress has provided us.

So when it comes to loans for retooling the factories and their floors so that they can produces more energy-efficient cars, we’re working within those means that Congress passed for us to be able to do that. And the same is true when it comes to the Troubled Asset Relief Program, where we’re looking at that.

The confusion, to an extent, is understandable. Mulling the best strategy for partial nationalization of the once-proud auto industry must be no easy position for a White House that sold itself to America as a champion of free-market conservatism. But Detroit CEOs have taken their plight directly to the Treasury, which Congress recently gifted with sweeping power to scoop up any troubled asset that threatens the nation’s economic stability.

Congress might have thought this bailout would be limited to Wall Street’s failing financial institutions. But, at this point, who would argue that Detroit’s automakers aren’t troubled assets as well?

The evidence, after all, is striking. GM’s domestic sales have fallen 18 percent this year, and Chrysler’s are down 25 percent. On Wednesday, news got bleaker when GM announced an 11.4 percent drop in global sales for the third quarter alone. The question remains whether Bush officials will deem these automakers, like Wall Street firms, too big to fail.

For some members of Congress, the answer is a no-brainer. In an Oct. 23 letter to the Treasury Sec. Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke, Michigan’s entire congressional delegation urged the administration to use its powers under the financial rescue bill to save the state’s famously regional industry.

Every segment of the U.S. automotive industry –- automobile manufacturers, dealers that are engaged in sales of autos and light-duty trucks, and auto finance companies that provide financing to dealers and to consumer and commercial purchasers of vehicles -– is experiencing devastating effects that have resulted from the worldwide crisis in financial and capital markets and the freeze-up in credit markets. … In this current economic environment it is imperative that the government ensures that liquidity is restored, so that the U.S. auto industry is able to function until normalcy is restored to credit markets.

Not everyone, though, agrees.

Steven Pearlstein, the Pulitzer Prize-winning business writer for The Washington Post, ran a piece Wednesday under the heading, “A Detroit Bankruptcy Beats a Bailout.” And an editorial in the Boston Globe Thursday points out that Detroit’s troubles go much deeper than the recent credit crisis. A historical over-reliance on gas-guzzling SUVs, for example, has disadvantaged America’s automakers as fuel costs have leapt in recent years. “A merger of GM and Chrysler would not fix these problems,” the Globe writes. “And federal backing for such a deal risks entrenching the status quo.”

Even Perino conceded this week that the failure of Detroit’s automakers is largely their own doing.

Complicating the saga, $25 billion in federal loans to help Detroit shift to more fuel-efficient vehicles could take between six and 18 months to arrive, the Bush administration announced earlier this month. To complete their merger deal, GM and Chrysler are requesting an early $10 billion from that allotment. They also want GMAC, their lending arm, to become a bank holding company, which would allow it to tap the $700-billion financial bailout program.

That merger could be finalized by Election Day, the Detroit Free Press reported Thursday.

Meanwhile, reporters might want to aim their questions about the administration’s bailout plans to someone other than Perino. Asked if any retailers offering lines of credit (Maytag was mentioned) would be eligible for bailout funding, the White House spokeswoman didn’t have the answer.

It’s a good question. It’s not one that I can answer, because I’m not part of the — I’m not an economist, that is a regulator looking at the Troubled Asset Relief Program. I don’t want to — I don’t think the White — I don’t think the White House would be open to that, but I just don’t know.

No wonder there’s so much confusion surrounding this program.

Ben Bernanke (WDCpix)

Democratic leaders, who hope to inject billions more borrowed dollars into the economy before the end of the year, got a little boost from the chairman of the Federal Reserve on Monday.

Appearing before the House Budget Committee, Fed Chairman Ben Bernanke emphasized the importance of the recently enacted $700-billion Wall Street bailout, but he endorsed additional steps to help the ailing economy.

“Given the uncertainties about the near term, and the risk that still exists,” Bernanke said, “I think that it is appropriate for Congress to be thinking about a fiscal program.”

Illustration by: Matt Mahurin

Bernanke was careful, however, not to endorse any specific plan, saying only that “the size and the composition of that are, obviously, items for the Congress to determine.” Asked to assign a dollar figure, the Fed chief declined. “It should be significant,” he said, “but I can’t give you a number.”

Last month, House Democrats passed a $58-billion proposal designed to create jobs and stimulate consumer spending, but Senate Republicans — lining up behind a White House veto threat — blocked the measure. Democratic leaders, hoping to return to the issue next month, were quick to grab Bernanke’s comments as ammunition in the partisan debate.

“I urge President Bush and congressional Republicans to work with Democrats to make a targeted, fiscally-responsible recovery a reality,” House Majority Leader Steny Hoyer (D-Md.) said in a statement.

The Democrats’ stimulus strategy would expand benefits to the unemployed, help states with health-care and other costs and pump billions into the country’s ailing infrastructure. Many economists have endorsed those steps, saying they would do for Main Street what the bailout package did for Wall Street. New funding for food stamps and low-income heating programs, for example, “gets money in the hands of the people who are most likely to spend it immediately,” said Heidi Shierholz, an economist at the Economic Policy Institute, a liberal policy group.

But the White House has opposed the House plan, maintaining it would lead to billions of dollars in “self-perpetuating entitlement spending.”

The White House spokeswoman Dana Perino told reporters, after Bernanke’s testimony Monday, that the administration still opposes the House strategy, but would consider other stimulus options. “We’re continuing to have conversations with members of Congress,” Perino said, “and we’re open to ideas that they would put forward.”

The size of the Democrats’ intervention plan seems to grow by the day. A few weeks after the House passed its $58 billion proposal, House Speaker Nancy Pelosi (D-Calif.) floated the idea that $150 billion would be needed. By last week, that figure had jumped to $300 billion.

Many economists say the larger figure is appropriate. Dean Baker, co-director of the Center for Economic and Policy Research, said that, since the start of the housing slump, the country has lost $5 trillion in housing wealth — a decline resulting in roughly $300 billion in annual consumption. “The reason that people were spending was that they had the wealth,” Baker said.

Both Baker and Shierholz support a package of at least $300 billion.

Bernanke, even in supporting a new federal intervention, was quick to warn lawmakers that they must weigh its short-term benefits versus the long-term costs. The Treasury is already $168 billion in the hole from another stimulus bill passed earlier in the year. That strategy — which gave every taxpayer a $600 cash refund — is widely credited with buoying retail sales for a few months. But it failed to prevent the larger decline in consumer spending due to the evaporation of home equity.

Much of the success of a second stimulus package, Bernanke said, would hinge on how targeted — and how immediate — the reforms are. New infrastructure projects, for example, tend to take years to develop, he warned, meaning the stimulating effects might arrive too late to do the economy much short-term good.

“If it’s well invested, that’s a very good thing for the economy,” he said. “The question really turns on how much extra spending and employment will you get from infrastructure projects that you would not otherwise have had.”

Targeting states, Bernanke added, is a safer short-term bet — particularly if the new spending prevents cuts in state services or restores programs already slashed. He cautioned, though, against “compensating [states] for past spending or putting money in the rainy-day fund, because that doesn’t help the current situation.”

Not everyone has jumped on the stimulus bandwagon. House Republicans continue to blast the Democrats’ stimulus plan as an expansion of government at the expense of taxpayers. “We should not be under any illusion that this stimulus package will address the core problems of our current financial crisis and economic weakness,” Rep. Paul Ryan (R-Wis.), ranking member of the House Budget Committee, said during Monday’s hearing.

Jagadeesh Gokhale, an economist at the libertarian Cato Institute, warned of a broader trend, arguing that the uncertainty created by sporadic government interventions does more economic harm than good. “Policy stability,” Gokhale said, “is much better than short-term shots in the arm.”

Meanwhile, Bernanke declined to say whether the country is in a recession, arguing that it’s merely a technical term tossed around by academics.

“We are in a serious slowdown in the economy, which has very significant consequences for the public,” he said. “Whether it’s called a recession or not is of no consequence.”

Bush went first, explaining to the American people that Washington will invest $250 billion in the nation’s banks. The Treasury Dept. will take equity stakes in banks, which have been pressed into accepting partial nationalization in return for an investment of taxpayer money. The FDIC is set to talk about launching an insurance fund to guarantee new issues of bank debt.

Bush defended the move, saying it’s not an abandonment of the free market.

Angry Bear puts it this way:

I’ve always wanted to have my very own bank…

The Big Picture has a rundown of which banks will get the money – and how much they’ll get. And a little commentary on the fact that, as unthinkable as partially nationalizing banks may seem, it should have happened far sooner:

Federal Reserve Chairman Ben Bernanke (WDCpix)

Amid the clamor over the crisis on Wall Street, the U.S. Treasury’s $700 billion Troubled Asset Rescue Program, or “TARP,” bill and the evolving collapse of the global banking system, little attention has been paid to the extraordinary credit extensions at the Federal Reserve. But these are now without parallel in Fed history, including during the Great Depression.

In the last three weeks, Federal Reserve Chairman Ben S. Bernanke, with the help of Treasury Sec. Henry Paulson Jr., has increased the Fed’s credit extensions by $650 billion — roughly the same amount as the TARP. Taken together with the Fannie Mae/Freddie Mac bailouts, new Fed credits in just the last month or so now amount to some $1.6 trillion. Here’s how they did it.

Illustration by: Matt Mahurin

The Fed, to begin with, is a bank. Like other banks, it makes loans and investments, which are its “assets.” It finances them by taking deposits, mostly from its member banks, and raising capital, its “liabilities.” In the normal case, almost all its assets are loans to the government, or Treasury bills, notes and bonds; while its primary liabilities are its own debt certificates.

You’ve seen the Fed’s debt certificates; they’re green and carry the legend “Federal Reserve Note.” In other words, money. The Fed’s role in the economy is to stabilize the money supply so it is neither too plentiful, which can generate inflation, nor too scarce. It does so largely by manipulating the rate of interest that banks charge each other for overnight loans, the “Fed Funds” rate. If the Fed issues more currency to buy Treasuries from its member banks, banks become more liquid and the Fed Funds rate should fall; and vice-versa.

Bernanke is a serious academic who devoted much of his career to extensive studies of the failure of central banks during the Great Depression. He is the lead author of a 2004 Federal Reserve working paper, exploring the Fed’s policy alternatives “At the Zero Bound” — or the point where the usual tools of interest-rate policy cease to have any effect on the real economy.

In the paper, Bernanke poses a common policy conundrum. It sometimes happens that pushing down Fed Funds rates has no effect on medium- or long-term rates — or can even make them rise, if markets are worried that too much liquidity could cause inflation.

In such a case, Bernanke suggests, the Fed could use its balance sheet in a more targeted way. “If the Federal Reserve were willing to purchase an unlimited amount of a particular asset, say, a Treasury security, at a fixed price,” Bernanke wrote, “there is little doubt that it could establish that asset’s price.” But the Princeton economics professor also warned that the Fed should be “cautious” about such a strategy, since its results could be “quite uncertain.”

Starting in late 2007, and continuing ever more aggressively through 2008, Bernanke, as chairman, started precisely such an experiment in using the Fed’s purchasing power to target asset prices. But instead of targeting specific maturities of Treasuries, he targeted the illiquid assets weighing down bank balance sheets. In effect, could the Fed establish the price of the complex subprime mortgage-backed debt instruments, known as “CDOs’:and similar paper that has been destroying bank balance sheets?

The first attempt, in December, 2007, was appropriately cautious — it was relatively small and short-term; open only to Federal Reserve system member banks, and circumspect on acceptable securities. But step-by-step, he expanded the eligible borrowers from member banks to broker-dealers, then to AIG, an insurance company, and, most recently, directly to major corporations, mostly on an unsecured basis. At the same time, Bernanke greatly increased the volume and the range of targeted securities he would lend against, to include “investment-grade” (translation: “anything not junk”) CDOs.

The Fed’s weekly balance sheet has evolved into a fever-chart of Bernanke’s interventions. Start with the balance sheet of a year ago, in October, 2007. Total Fed assets were $890 billion, of which $780 billion comprised Treasuries, with the balance scattered among gold certificates, physical plant and other miscellany — or roughly the size it had been for several years.

Now jump ahead to the balance sheet from last week. The Fed’s assets have swelled to $1.6 trillion, an increase of 80 percent. But only $265 billion are Treasuries actually held at the Fed. The rest are a mélange of god-knows-what instruments vacuumed up from banks and investment banks.

There are $149 billion in dicey securities exchanged for Treasuries in bi-weekly auctions; “Other Loans,” to the tune of $420 billion (all we know is that it includes the credit extension to AIG, which has climbed to about $100 billion); a special $29-billion line for Bear Stearns, and $145 billion in direct lending to companies. There is also $325 billion in “Other Assets” — probably mostly dollars for foreign central banks to help local banks choking on dollar-based CDOs and other poison apples from America.

The total lending expansion, therefore, was about $700 billion, with about $650 billion in just three weeks since Paulson and Bernanke proposed what became TARP to purchase banks’ bad assets, or otherwise provide them with new equity.

In other words, even as academics and Congress agonized over TARP, Bernanke and Paulson had already pumped out roughly that amount of money — without so much as asking for a by-your-leave. Paulson even engineered a special $400-billion Treasury borrowing program -– i.e., increased the federal debt — to supply part of the extra cash needed to support Bernanke’s lending.

Fascinatingly, Bernanke’s fire-hose of liquidity has so far been accompanied by a steady tightening of lending conditions. Some market watchers worry that interbank liquidity is drying up because borrowing at the Fed is so much easier. Only time will tell.

If there’s one lesson from the past few years, it is the formidable nature of the law of unintended consequences. The vast new infusions of dollars will weigh on U.S. international balances for years. It is all in the name of staving off a “recession,” which now looks something like the 1960s specter of nuclear Armageddon.

We may have reached the point where the cure is scarier than the disease.

Charles R. Morris, a lawyer and former banker, is the author of “The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash.” His other books include “The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould and J.P. Morgan Invented the American Supereconomy” and “Money, Greed, and Risk: Why Financial Crises and Crashes Happen.”

Treasury Secretary Henry Paulson (WDCpix)

Congress’s failure to pass the Bush administration’s financial plan has triggered a wave of scare commentary -– “financial Armageddon,” a leap “off the cliff” or “into the abyss,” the trigger for “the Depression of the 2010s.”

There have been good background analyses of the $700 bailout plan in both The Economist and The Wall Street Journal. Two weeks ago, after Federal Reserve Chairman Ben Bernanke and Treasury Sec. Henry Paulson Jr. refused to rescue Lehman Brothers from bankruptcy, they were shocked at the subsequent reaction in credit markets. Sorting out claims was far harder than expected, and the losses on Lehman paper had a nasty snapback on supposedly safe money market funds.

Illustration by: Matt Mahurin

Shaken, Bernanke and Paulson decided that they couldn’t risk any more major bank failures. Instead, they decided to re-capitalize the industry by buying up its bad assets. The $700-billion price tag was just a guess. The terms of the purchase were intentionally loose to make it an offer that the banks couldn’t refuse, or even haggle over.

Paulson was called “The Hammer” on Wall Street. In a classic “bear hug” acquisition, you stampede the target’s board by the early release of an attractive proposal to shareholders. He used the same tactics with the U.S. Congress. To less effect.

By announcing the bailout to the public even before the congressional briefings, Paulson counted on, and got, a huge market recovery. He was essentially daring Congress to turn him down. But it did.

The plan was misrepresented from the start. The core problem is that banks are carrying toxic assets at far more than their true market value. If they mark them correctly, however, the accounting losses will wipe out their capital.

So the only way a bailout can “recapitalize” them is by vacuuming up the bad assets at much more than their true value. Taxpayers will get some money back at some point — but not much.

Nor does the plan have anything to do with preventing a recession. Major-market house prices more than doubled from 2000 through 2005; that’s about a 14 percent annual growth rate, the highest on record. If you bought a house with 1 percent down, which was easy, you got your investment back sevenfold in just three years!

With the value of the underlying assets growing so fast, banks lent to anyone on anything, and mounted second mortgage marketing campaigns to get current homeowners to cash in their paper gains. There were similar, if smaller scale, bubbles in corporate takeover loans, commercial real estate and auto loans.

Home-equity loans paid for 6 percent of all consumer spending from 2000-2007. Now that consumers are maxed out on debt and house prices are dropping back toward normal levels, that source of cash is gone. Consumer spending must go down — a lot. That’s why we’re in a recession, and the bailout can’t do much, if anything, about it.

How many votes would the bailout plan have gotten if the administration and the congressional leaders had told the truth — that this is a bank bailout that won’t prevent a recession or help homeowners?

Saleability aside, is the Bernanke-Paulson plan really such a good idea? One leading economist insists that it’s necessary to avoid the “destructive power of deleveraging.”

But excessive leverage is what the crisis is all about. Deleveraging, however painful, is the solution, not the problem.

Today, panicky interbank markets pushed the overnight lending rates to 7 percent. But a quarter-century ago, then-Federal Reserve Chairman Paul Volcker intentionally pushed the overnight lending rate to 19 percent(!). He had chosen to spike inflation by choking off the supply of money and credit, knowing that he would trigger a vicious recession.

Real gross domestic product dropped 1.9 percent in 1982 — the worst downturn in postwar history. President Ronald Reagan, Republicans might note, supported Volcker all the way. Together, they laid the groundwork for the strong growth of the 1980s and 1990s.

Bernanke and Paulson talk about a recession as if it’s the equivalent of a nuclear holocaust. It’s not.

The whole country has grossly overspent its income for the last half decade and is wallowing in unpayable debt. The leveraging-up process has also created a bloated and omnivorous financial sector that needs to be shrunk drastically.

In short, it’s about the same scale of problem that Volcker faced in 1982, and warrants similar resolve. Many banks will doubtless fail without the bailout, with possibly severe short-term consequences. The long-term cost of a zombie financial sector on life support might be even higher.

The bailout was a questionable idea at best, made worse by the ram-through attempt and the misleading sales pitch. And neither presidential candidate has any stake in delaying the start of a recession until he takes office, and gets stuck with the blame.

So Congress did the right thing. It’s time to let the bailout die.

Charles R. Morris, a lawyer and former banker, is the author of “The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash.” His other books include “The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould and J.P. Morgan Invented the American Supereconomy” and “Money, Greed, and Risk: Why Financial Crises and Crashes Happen.”

Federal Reserve Chariman Ben S. Bernanke (WDCpix)

Different field. Same game.

In a virtual rerun of their Senate visit yesterday, Treasury Sec. Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke met a highly skeptical House committee Wednesday, as the financial sultans continue the quest in support of their $700 billion financial rescue plan.

Hoping to close the deal, President George W. Bush announced he would address the nation at 9 p.m. tonight in an effort to convince an equally leery American public of the proposal’s merits.

Central to the plan, the Treasury Dept. would acquire broad powers to buy up the toxic assets (mostly mortgage-backed investments) of the nation’s financial institutions — thereby freeing those firms to lend with greater confidence to businesses and individuals. The proposal states that any decisions Treasury makes be “non-reviewable” by “any court of law or any administrative agency.”

Appearing before the House Financial Services Committee Wednesday, both Paulson and Bernanke urged Congress to pass the proposal quickly, warning that the consequences of delay would reverberate throughout the credit-based economy. But they repeatedly hit a stumbling block: They know little about what their plan entails.

Asked, for example, if they’ve decided who will manage the toxic assets once the Treasury buys them, Paulson said, “We have not yet, but we’re sure working on it.” Critics, meanwhile, worry about conflicts of interest if Wall Street folks are charged with deciding which Wall Street firms will get help.

Asked how they know that $700 billion is the proper figure, Paulson responded vaguely, “we thought about it a lot.” Then he added, “We’re going to learn as we go along.” Critics, meanwhile, worry that banks will still fail if the funding is insufficient, while injecting too much money would mean taxpayers would never get a decent return.

Asked what precautions would be built in to ensure that power is not abused, Paulson could only promise, “I’m not looking for extraordinary power.” Critics, meanwhile, point to the Iraq war as an example of what this administration has done when given non-reviewable authority. (“You have a credibility problem,” Rep. Gregory Meeks [D-N.Y.] pointed out.)

Asked whether pension plans would be eligible for a bailout, Paulson replied, “I’m not prepared at this time to discuss the details of the plan with that specificity.”

That’s a tough response to swallow for lawmakers as they are being asked to appropriate $700 billion blindly. Many wondered aloud why they can’t have more time to consider the proposal.

The answer from the White House can be summarized in two words: investor confidence.

The quicker Congress passes the bill, Paulson and Bernanke said, the quicker that confidence will be restored. “Credit is the life-blood of the economy,” Bernanke said. “This is going to have real effects on people at the lunch-bucket level.”

The comments come as congressional leaders and administration officials are inching their way toward a compromise on the controversial bailout plan. Wednesday, the Bush administration announced it would accept a provision limiting the pay packages for the heads of participating companies — an element pushed by lawmakers of both parties.

The financial turmoil has disrupted the presidential election as well. Sen. John McCain (Ariz.), the Republican nominee, announced Wednesday afternoon that he’s suspended his campaign to return to Washington and address the crisis.

Sen. Barack Obama said the debate should not be postponed. “This is exactly the time,” he said, “when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess.”

But advocates are getting anxious. In a letter to congressional leaders and White House officials, Bill Novelli, head of AARP, urged stricter regulations to protect retired Americans. “This crisis highlights the importance of policies that make retirement income, pensions and personal savings more secure,” Novelli wrote.

The turmoil is only complicated by the looming elections. Washington lawmakers would love nothing more than to be at home telling constituents all that they’ve done to save the economy. But first they have to do it. And their very few choices leave them in an uncomfortable spot: Either pump hundreds of billions of taxpayer dollars to save the listing ship, or offer the harsh suggestion — radical in a credit-based economy — that Americans live somewhere near to their means.

In an election year, the latter is not likely to happen.

Whether the probe will turn up anything is unclear. But its launch, along with some of the tough questioning by senators Tuesday over the Treasury Department bailout plan, show that we’re all still looking for something in this crisis. We’re trying to find a villain, a face that represents the wrongdoing. The savings and loan debacle had Charles Keating. Enron had, well, Enron itself, and Jeffrey Skilling. So far banks and lenders that made high-cost loans to vulnerable borrowers are the bad guys, but no one single financier has emerged who sums up all the problems that went on. That makes it harder to simplify the crisis, to frame it by pointing fingers at one individual.

The Wall Street Journal notes today that the complex mortgage-backed securities at the center of the crisis make it hard to distill into a face or a name. From the Journal:

Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find at the root of the exotic financial vehicles that have sickened banks around the world. A more likely outcome of the probes will be hundreds more retail-level fraud cases of the type already being brought against brokers, real-estate agents, and buyers related to falsified mortgage applications.

There is yet to emerge a figure such as banker Charles Keating, who served four years in prison for fraud related to the collapse of American Financial Corp. and whose name became synonymous with the S&L crisis. But already there is widespread anger that mortgage securities deals enriched many on Wall Street at the expense of millions of home buyers and taxpayers nationwide who will end up paying the costs

Wall Street is an abstraction, as Federal Reserve Chairman Ben Bernanke said at the hearing, when pressed about whether it owes the American people an apology. But that doesn’t mean that as the bailout controversy goes on, there won’t be a continuing search for blame, for someone who symbolizes the mess we’re now in.