Thursday Night Poker at Hank's

Here's what Washington has risked in the last 10 days: $200 billion for Fannie and Freddie; $85 billion for AIG, $69 billion to buy short-term debt from the Ministry of Mortgages (Fannie, Freddie and the Federal Home Loan Banks), $50 billion to insure money-market funds and another $230 billion in loans to help anyone trying to get out gets their money back. That's 15 months of Pentagon spending crammed into 10 frantic, sweat-stained days. And of course we haven't counted the $29 billion invested in Bear Stearns or the several hundred billion more that will be spent buying illiquid debts from the usual suspects.

The hope and the beauty of the scheme is that the resulting easing of financial strains should help the government get more of its money back, in the long run. The danger is that there is really no plan B. We came within a hair's breadth this week of a run on money-market funds that are stuck holding lots of illiquid asset-backed paper they can't redeem. What scared Washington into pulling out all the stops was nothing less than the strong likelihood of a global credit crash.

But even the U.S. government's credit has a limit, and we've just increased the likelihood that it will be reached before the last Baby Boomer enters nursing care. The U.S. government is now explicitly backing $3 trillion in Mortgage Ministry debt, and a decent chunk of the $4.5 trillion mortgage-backed market by promising to buy up hundreds of billions in distressed assets. It's also insuring $4.4 trillion in bank deposits with the $50 billion on the account of the Federal Deposit Insurance Corp. and another $3.4 trillion in money market funds with its promise of $50 billion in insurance capital and a $230 billion credit line designed to avert a run on money-market accounts. That's a lot to guarantee with not so much money up front. It's good that the government is doing this, because the biggest assets it is putting up are the dramatic backdrops suggestive of unlimited federal power.

The main takeaway from this week, I think, isn't that the stock market gyrated wildly not all that far from 10-year lows, or that some mutual fund lost money on Lehman bonds. It's that all the other mutual funds weren't liquid enough to meet redemptions in a panic, and therefore needed a $230 billion federal loan. The government has now put its credibility and credit on the line, waving a huge pile of bills at a global mob clamoring to withdraw its money. It should work, but that's far from certain, and if it doesn't the next instance of appeal will be our deity of choice. For God's sake, pray no one calls Paulson's bluff. Because he's holding a busted straight, jack high.