Well, which is it? On one hand, Secretary Paulson claims that the mortgage-backed securities on bank balance sheets are so “toxic” that letting them stay there puts the entire economy at risk. On the other hand, Mr. Paulson himself, and President Bush last night, claim that the value of the assets will eventually rise higher than the current market price, so that taxpayers will eventually recover much of the $700 billion Messrs. Bush and Paulson propose to spend buying up these assets. This is a point that even President Clinton agrees on: Mr. Clinton was on television last night reckoning that “There’s a fair chance if this is done right, the taxpayers will get their money back, even make a profit.”

We’re disappointed with the way President Bush has handled this. “My natural instinct is to avoid government intervention,” he said last night. Too bad he couldn’t have nominated his instinct to serve as Treasury secretary. On economics, the Bush instinct is better that either of the men running to succeed him, Senator Obama and Senator McCain, who last night issued a joint statement asserting, “the effort to protect the American economy must not fail” and “Now is our chance to come together to prove that Washington is once again capable of leading this country.”

The American economy doesn’t need protection by Washington, it needs protection from Washington. What a contrast to Reagan’s remarks in 1988 to the Future Farmers of America, his reference to “something we Americans have known for some time: that the 10 most dangerous words in the English language are, ‘Hi, I’m from the Government, and I’m here to help.'”

The economy doesn’t need to be led from Washington. It needs to be led from Wall Street and Silicon Valley and from garages and corporate headquarters and farms and stores and laboratories and factories all over America. It’s a decentralized network, not a command-and-control machine.

Mark this point: Washington’s action — particularly the seizure of Fannie Mae without a shareholder vote — sent a message that has made the problem much worse. It said that the mortgage-backed securities weren’t worth much, and it said to those considering buying shares in teetering financial institutions on the hope that they would recover that they shouldn’t invest, because they risked being wiped out unpredictably in a government takeover.

Mr. Bush’s dire warnings and descriptions last night — “credit markets have frozen,” “we are in the midst or a serious financial crisis,” “our entire economy is in danger,” “America could slip into a financial panic,” “The gears of the American financial system began grinding to a halt” — are good politics. If Congress doesn’t pass his bailout plan and the economy craters, the president can now say, “I told you so” and blame the Democrat-controlled Congress. But good politics don’t always make good policy, or good principles, and Mr. Paulson’s behavior to date doesn’t exactly inspire confidence that, going forward, he will avoid acting arbitrarily.

Nor is it clear that just because some banks are saddled with mortgage-backed assets that are not now liquid and that as a result credit is hard to come by, that situation won’t resolve itself on its own, without a government intervention. New banks may be founded to fill the need for credit, backed by new assets. Some of the old banks may go bankrupt or others may ride out the crisis by seeking new private capital and hoping that eventually Mr. Paulson and Mr. Bush and Mr. Clinton will be right and the mortgage-backed assets will recover their value.

Moneylenders have been around since biblical times — Matthew credits Jesus for throwing them out of the Temple — and it just is hard to believe that unless Congress acts this week to implement the Bush-Paulson plan, 2,000 years of money lending is going to come to an end never to return. Interest rates may go up for certain loans in the short term, but that’s just letting the markets rather than the government set a price on capital.

The whole situation is reminiscent of the justification for the pre-emptive strike on Iraq. The Bush administration told Americans then that if we didn’t invade, the consequence could be a mushroom cloud over an American city. Now instead of a mushroom cloud the specter being invoked by Mr. Bush is a “financial panic.” It’s what Senator Obama calls the politics of fear, in a new incarnation. We support pre-emptive attacks in foreign policy, and are glad that Iraq has been liberated, but economic policy is a different matter. There the Constitution does not appoint the president the commander in chief of the economy.

And what is being attacked today is not a foreign enemy but American capitalism. The tragedy is all the greater that it is a kind of friendly fire from a president whose tax cuts have done so much to create incentives for growth and whose natural instinct is so inherently sound.