As vapor, water and ice, the H2O molecule behaves differently and is subject to different rules.
For the last few years, the global economy has been in a phase change. The biggest theme has been the tilt East and South, or at least East. While that theme is investible (recently taking a strong stomach for the volatility), of more immediate importance has been the efforts of the developed West to carry on at ever increasing levels of prosperity, and the recent unravelling of that effort.
Unfortunately, our mojo is no mo'. Well-intentioned efforts to recapture the way were we, or keep us out of the ditch, are premised on the ditch running parallel alongside the road, and not cutting across it. Sometimes I feel that all the efforts to date of all the governments that have made an effort make one big bridge to nowhere. We are in a mess, and it's not really investible.
If we are in a phase change, it stands to reason that the old rules are shifting, so the old relationships between policies and results are called into question. This is not an excuse to do nothing. It is a caution not to be particularly confident about the outcome of any particular initiative. In that respect, Paulson is right to pull the plug on TARP's original approach.
In any event, the glaring problem with the original approach was that a market price (even one elevated by favoritism) would have completed those who did not sell their positions to the U.S. Treasury to mark the value of the holdings to that market price, with a resulting dramatic impairment of capital. Transparency is all well and good, but a little bit of mark to model for the next few quarters is just what the doctor ordered. So, unless TARP was going to cover the whole mess, the awful markdowns on the stuff left out in the cold would probably have sufficed to swamp quite a few currently listing financial battleships.
A spot of good luck sure would be useful right about now.