Why a $700 billion bailout makes sense

Federal Reserve Chairman Ben Bernanke says the rescue of the nation's financial system is "a matter for psychology."

I was a psych major and a pro trader. I can speak to this.

We should talk about the crisis of confidence at work here; it too often gets lost in the noise. Ultimately, there's no "real" price for anything. Not even gold.

Treasury Secretary Hank Paulson wants $700 billion -- a number that says the government "is going to take this entire problem down, all at once."

If you do it $150 billion at a time, the Treasury will end up with more than $700 billion on its books. That $700 billion is intended to get guys such as Warren Buffett to step in, guys who'll be thinking: "No sense letting the government sop up the excess returns generated by holding these things to maturity. I'll buy them myself, before the morons from Treasury get here."