The McCain campaign reports that yesterday’s White House summit with President Bush, senators McCain and Obama, and the congressional leadership aimed at reaching an agreement on Secretary Paulson’s plan to buy troubled mortgage-backed securities from financial institutions “devolved into a contentious shouting match.” Thank goodness for checks and balances; if the Paulson plan runs aground in Congress, it would be fine with us.

Our friends at the New York Post set out this week to document the baleful effects of the credit crisis on ordinary New York businesses, attempting to make the case for the need for speedy federal passage of the Paulson plan. “Scores of small-business owners are struggling to get tightfisted banks to dole out loans for much-needed expansion plans,” the Post reported.

The Post found two cases: “the owners of Five Point Fitness were given the runaround by their skittish bank for months — and eventually had to borrow $175,000 from well-heeled clients.” And “Kenny Lewis, 39, who owns a Subway sandwich-shop franchise in Queens. He applied for a $25,000 Small Business Administration loan and was told he’d get an answer in seven business days.” Reports the Post: “He is now considering borrowing from private investors, saying ‘they believe in what I’m doing.'”

Forgive us, but this strikes us as something less than a crisis. Neither the sandwich shop nor the gym have closed. Both are turning to private investors rather than banks. What, exactly, is wrong with that? Truth is, there is a vast amount of private capital waiting on the sidelines for opportunities to invest. The Investment Company Institute reports that, for the week ended Wednesday, September 24, there were $3.398 trillion in money market mutual fund assets — enough to make that $700 billion Paulson plan look like small change.

The Federal Reserve’s September 18 report on the Flow of Funds reports that $1.4 trillion worth of those money market funds shares are in the hands of households and non-profit organizations and that households and nonprofits hold another $5.9 trillion in time and savings deposits. The Fed reports show further that these figures have soared in the past few years; back at the end of 2004, households and non-profits held just $904 billion in money market fund shares, and about $4.5 trillion in time and savings deposits.

Microsoft is sitting on $25 billion of cash, debt free. General Electric has $3 billion on hand for acquisitions; its chief executive was on CNBC yesterday boasting about how much liquidity GE has. Warren Buffett, having just invested $5 billion in Goldman Sachs, tells the Wall Street Journal, “I still have some money left.”

While some banks are facing trouble, the banking sector as a whole has recovered sharply since the lows of mid-July — a recovery unrelated to the Paulson bailout plan. An exchange-traded fund that tracks the Keefe, Bruyette & Woods Bank Sector index has outperformed the Standard and Poor’s 500 Index over the past two months; it’s up about 40% from its mid-July low. Shares in Wells Fargo & Company, a California-based bank, are trading around $34 a share, up from $20 in mid-July, a 70% gain.

Meanwhile, everyone is falling over themselves announcing what a great investment these mortgage-backed securities are going to be for the taxpayers. “The government has a great opportunity,” Mr. Buffett told the Journal. “If they buy things at market prices with the government’s cheap funding, they should make a lot of money.” The Journal also ran an op-ed piece by Andy Kessler under the headline “The Paulson Plan Will Make Money for Taxpayers,” claiming that Mr. Paulson “could net a trillion dollars and maybe as much as $2.2 trillion” for the U.S. Treasury after the investment of $700 billion.

If this is such a great deal — and we don’t doubt that it is — why not let the private sector in on it? What’s wrong with some private profits in the economy rather than government ones? And what’s with the short-term thinking that prevents the current holders of this mortgage-backed debt from holding on to enjoy these predicted gains?

If the politicians can’t agree on a bailout plan, that may be for the best. One possibility that hasn’t been adequately appreciated is that the stock market is poised for a rally anyway. If it happens without the “bailout,” Americans will understand that economic growth doesn’t require the government buying or seizing lots of assets. If it happens after the bailout, Americans may fall into the post hoc ergo propter hoc fallacy and get the false impression that the bailout was the cause of the rally.

It’s not that there is nothing the government can do to improve matters. Speaker Gingrich, whose cuts on the capital gains tax unlocked the stock market rally of the late 1990s, opposes the Paulson plan. He calls it an “appallingly bad plan.”

“This idea that we’re going to buy the paper and some bureaucrat in Washington is going to be responsible for $700 billion in bad paper, I think, is socialism at its worst. I can’t imagine why this administration is doing it. I think it is profoundly wrong, and I hope it is defeated,” Mr. Gingrich said on Fox News the other night.

On his Web site, Newt.org, he suggests several alternative actions Washington could take to address financial problems: go to a zero tax rate on capital gains, repeal Sarbanes-Oxley, and suspend mark-to-market accounting for six months and replace it with a three-year rolling average. We’d add to that extending the Bush tax cuts on income.

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Not everything the Bush administration and the Bernanke Federal Reserve have done has been unwise: one helpful step the Fed took was to loosen the restrictions on investments in banks by hedge funds, private equity funds, and sovereign wealth funds; those funds had feared being classified as bank holding companies and being subjected to stricter disclosure requirements and other regulations.

But not all the answers to this crisis, such as it is, are going to come from Washington. If America’s economy is going to grow robustly, how the trillions in private assets waiting on the sidelines are invested is going to matter more than what happens to Mr. Paulson’s proposed $700 billion fund. The best message of confidence the Bush administration could send to that capital is to stop unpredictably buying up or seizing pieces of the private economy for the government.