Financial scare tactics?

Is Treasury Secretary Henry Paulson and Fed Reserve Chairman Ben Bernanke painting a gloomier financial outlook than it really warrants? The $700 billion bailout plan is now up for a vote. The plan calls for $250 billion to be immediately available for the Treasury Department to buy up bad debts and failing institutions.

Like many others (Irwin Kellner of WSJ MarketWatch, Joseph Calhoun of Alhambra Investment Management, and Pejman Yousefzadeh of RedState), I am not convinced of the severity (near depression!) of the nation's financial landscape. The reason for this mess was government interference in the first place. By letting the government seizing more control of the elements of capitalism would hinder the recovery, in my opinion.

There's nothing wrong with Lehman Brothers collapsing. That's the price it pays for poor investment decisions. There's nothing wrong with Merrill's fire sale to Bank of America, WaMu's sale to JPMorgan Chase, or Wachovia's sale to Citi. They had to do it in order to survive in this market. Godman Sachs was still able to raise $10 billion in one day. JPMorgan raised $10 billion in order to finance the WaMu buyout.

Obviously the engine of capitalism still runs. However, it seems Paulson, Bernanke, and many lawmakers are unwilling to trust it anymore.