I shared my thoughts with a couple of my old banking buddies. Here's the response I got from one of them. Actually, other than the timeline, it's pretty close to DK's response. To be honest, as scary as his scenario is, I find it hard to debate.

My short answer.

The core of your argument is...

"if we are to avoid permanent damage to our economy and a change in our way of life massive government intervention is needed."

I believe pretty much everyone now understands that "our way of life" over the past twenty years has been to maximize consumption through borrowing.

Everyone won under that scenario: lenders made fat profits; producers produced goods that consumers consumed; politicians collected taxes on the transactions, and consumers got a boost in their quality of life. But only for the short run.

Unfortunately, the underlying economic props of value creation did not exist. Eventually, the lenders balked and the bubble popped.

The carnage is visceral:

-Most lenders are bankrupt.
-Most borrowers have loans they cannot possibly repay.
-Producers of goods that consumers purchase are facing huge drops in their sales and have to lay off workers, making the problem even worse.
-Taxing entities are facing large declines in tax revenues and budget shortfalls and are forced to do the same things that businesses are doing--lay off workers and reduce services.

Overall, the consumer, who has been spending 105% of his income, has now throttled back to where it is estimated that he/she will be spending only 95% of his income and saving 5% or paying down debt. Their cutback in spending has resulted in a huge decline in GDP. But in time, maybe a long, long time, an economically healthy and ultimately desirable outcome might result. There will be huge amounts of pain in the interim. Our way of life will change. But hopefully only temporarily.

The Current Planned Response and The Expected Result

To have the government fill the gap with additional spending - trillions of $$.

In the short run, that's a practical solution. But it's nothing more than an extension of the circumstances that caused the problem in the first place.

The government is not spending the cash flow it is currently generating--it is borrowing it. That's been the case for almost a decade. Enough time to create a chokingly large national debt.

The trillions of dollars bailout would merely push the cycle out a couple of years "to preserve our way of life."

As the first borrowing balloon popped, so will the government borrowing bubble end. Lenders will balk. We'll be repeating all this again in a few years. Long before the economy has recovered and re-built itself. Americans do not have the self-discipline to change their way of life themselves. It will take the harsh discipline of economic forces to accomplish that.

At that point, with the economy, heavily dependent on government spending, the government will have three options, or a combination of the three:

-Let the value of the dollar sink to unprecedented levels and permit the resultant inflation to run its course.
-Default on it's debt.
-Cut spending in massive amounts.

So my feeling is--let's get on with it. We'll have a depression. Huge numbers of people will be out of work. Consumption will drop even further. Our way of life--the unsustainable way that we have become so accustomed to--will change decidedly. The economy will recover, but very, very slowly--taking a decade or more. But when we come out the other end, the country's "way of life" may be more sustainable. Our country's position in the world will change as the result. But that's simply the result of the mistakes we've made in the past. Sad, but unavoidable.

Some of us may see all this happen; others will be watching from another place. It'll take a long time, more than some of us have left.