So what's going on with that bailout?

Turns out that Paulson is essentially making it up as he goes:

The Treasury Department on Wednesday officially abandoned the original strategy behind its $700 billion effort to rescue the financial system, as administration officials acknowledged that banks and financial institutions were as unwilling as ever to lend to consumers.

But with a little more than two months left before President Bush leaves office, Treasury Secretary Henry M. Paulson Jr. is hoping to put in place a major new lending program that would be run by the Federal Reserve and aimed at unlocking the frozen consumer credit market.

The program, still in the planning stages, would for the first time use bailout funds specifically to help consumers instead of banks, savings and loans and Wall Street firms.

Treasury officials said they hoped to invest about $50 billion from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases. [...]

“Illiquid assets looked like the way to go,” Mr. Paulson told reporters at a news conference on Wednesday. But as economic and financial conditions declined so rapidly, he said, that he had to change gears. “I will never apologize for changing the approach and the strategy when the facts change,” he said.

The change in strategy has had only limited impact on the frozen credit markets. The biggest improvement has been in the willingness of banks to lend to each other, a change that largely caused by the willingness of both the United States and European governments to guarantee bank deposits and interbank loans.

But the market for commercial debt backed by consumer and business loans has remained at a near standstill since Lehman Brothers, one of Wall Street’s leading investment banks, collapsed in September.

So far, the banks are using the bailout money to basically cover their own losses, not make new loans. Which is good for the banks, but not so good for keeping the economy going. There's really not much anyone can do about it, since there are fewer creditworthy borrowers in November than there were in August, and most of those that can borrow are already deep in the hole, and shouldn't be taking on more debt. Here's Tim Luy:

With consumers already overextended, the room for rapid credit growth is simply limited. Moreover, with economic activity deteriorating and unemployment rising, the number of creditworthy borrowers is falling. This comes on top of the deleveraging already underway in the financial sector. The Fed and Treasury are able to do little but prevent the banking system from outright collapse.

Simply put, policies focused on housing and consumer spending are a black hole for spending – this summer’s short-lived stimulus package is a case in point. Policymakers need to come clean with the American public: Future patterns of growth will simply be less dependent on consumer spending. We are entering a period of structural adjustment, and it will be painful. We spent decades pretending that the relentless focus on producing nontradable goods and relying on a ballooning current account deficit to hide our lack of productive capacity was an appropriate policy approach. But ultimately, those policies have failed us, with stagnant income growth for median income families and the deepest recession since the 1980’s (or even worse).

As far as the changes to the Paulson plan go, it's something of a vindication to those who argued against the bailout in the first place, preferring instead that the money go to consumers instead, or have the Treasury buy up equity and inject capital directly into the system rather than buying up these toxic securities and assets backed by bad mortgages and hoping for the best.

After the stock market crash of 1929, the Hoover administration tried a variety of different responses as well, most of which just made the situation worse, ranging from inaction early on to a misguided attempt to boost domestic production by raising tarrifs on imported goods (other countries retaliated by imposing tariffs as well, drastically depressing international trade).

One would hope that the people in charge have learned a few things since then, but it's hard to say whether that's true at this point.