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Editorial Director for NPR’s Planet Money

A transcript follows.

Davidson is a reporter about business and economics for NPR’s national desk and the editorial director for Planet Money, a multimedia project covering the global economy.

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Washington, DC: I’m your average, run-of-the-mill investor, probably. My husband and I both have 401(k)s through work, and I have a small individual IRA and a Roth IRA, and we have a T.Rowe Price mutual fund, 529 plan for our son. How worried should we be? We are in our 30s — do we panic?

A wise person told me that bubbles—periods of excessive, irrational optimism—are always followed by periods of excessive, irrational pessimism.

I feel confident that, like every time in the past, the US and the world will continue to grow. There will be smart people coming up with new products and new ways to make old things.

There will be great books and new businesses and all of the things that make an economy grow.

The financial system will adapt as will government regulation.

It won’t be perfect. But it’ll work. There will be growth. All of our 401(k)s will be worth more, in a decade or two, than they are now.

Frankly, us 30 year olds are in great position. We’re buying up stocks on the cheap that we don’t need to sell for a long, long time.

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Washington DC: Do you know when this new bailout agency should be ready and taking phone calls? I need to refer the debt collectors to them. Thanks.

Adam Davidson: That is funny.

And, yes, it’s lousy that the average person doesn’t get a bailout.

If this thing works (and my hunch is it will) we do all benefit from the avoidance of a systemic breakdown of the global economy.

But, yes, it seems to be a truly lousy fact that the people who benefit the most directly are, in some cases, the very people who caused the crisis.

My strong sense is that Paulson, Bernanke and others take no pleasure in that. It goes against their core belief in how a market should work.

I know, I know. You’re all going to say: but Paulson is one of those people. And, yes, he is. And I don’t know the guy. But the strong evidence, in my view, is that he has tried, hard, to make those who took unreasonable risks pay the full price.

But when the crisis became potentially cataclysmic, he stepped in.

I’m not here to defend Paulson, but I will note that his firm, Goldman Sachs, seems to have taken far fewer of the crazy risks than any other.

Columbia, S.C.: The idea that investment houses need to be merged with traditional banks is a terrible idea. Of course investment houses want the balance sheet of banks, so the can get into the exact same leverage problem that they got into this time. And, if you think this current situation will cleanse investment houses of their appetite for over leveraging assets, you’re not a student of history. If we these two groups to become (more) intertwined, the FDIC will be in a pretty pickle for all of the failure risk it will take on.

Adam Davidson: That’s interesting.

I’ve been reading a lot about this very issue. It’s a crucial one.

I am going to say that the economists I’ve been speaking with disagree with you.

During the Great Depression, there was a strong belief that the cause was that the investment house portion of banks were cheating their commercial bank customers.

That is why the Glass-Steagall act outlawed combined investment and commercial banks.

But Europe never outlawed combined banks (well, italy did for a while, but no one else). And their combined banks did not cause huge crises.

Many economic historians have looked at the pre-Great Depression era and find that banks did not actually do all the bad things that Messers Glass and Steagall said they did.

In fact, Senator Carter Glass, in 1935, asked for his Act to be repealed. He said it was an excessive over-reaction to the Depression.

Also, if investment banks get FDIC insurance, that will come with a lot more regulatory oversight.

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D.C.: I am a big fan of your stories! Very understandable to a economics novice like me.

Thank you!

Adam Davidson: Thanks. That’s really nice to hear.

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Money Market Mutual Funds: What is it with this country? I did not put my money in money market mutual funds, because it was an investment vehicle that involved risk and I didn’t want to take the risk. Those who did invest, clearly accepted the risk. Now that things aren’t going well with the investment, we are now guaranteeing the funds. Sheesh. So not only do I not benefit from the funds during the good times, I’m suppose to pay for the funds in the bad times. I’m so tired of this. I was prudent in the good times, but clearly I’m the fool, since I didn’t realize that risk meant the government would prop up/guarantee the asset values.

Adam Davidson: You know, you did take a risk. You took the risk of not beating inflation by keeping your money safe from money markets.

There is no risk-free way of having money. It’s just a matter of which risks do you want, how do you diversify them, etc.

You are, of course, entirely right, though, that the entire system breaks down if people get the benefit of taking risks but don’t have to pay the cost. That’s a horrible situation. It encourages reckless behavior. It’s ridiculous. We shouldn’t do it.

The only reason it might be acceptable, today, is that a complete lack of confidence in the money market system could quickly lead to the kinds of bank runs we saw in the 1930s.

People lining up outside of a brokerage to take all their money out.

That could mean the sudden absence of trillions of dollars of capital just when the economy needs that capital most of all.

You’d feel that pain. It could lead to a complete cessation of global economic activity. I mean, nobody doing nothing.

We will all be studying this carefully over the coming weeks and months and years. Thousands of PhDs will be written about the last few hours.

We will, one day, have a better sense of just how risky things were. Just how ugly the picture Bernanke and Paulson were looking at is.

We will be able to judge their actions well.

But not yet, I think. We just don’t yet know if bailing people out was worthwile or not.

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Rhode Island: How do you feel about the soundness of firms like Schwab and Vanguard and their money market funds? Thanks.

Adam Davidson: I’d say, right now, those money markets have never been sounder. The US government seems set to guarantee them to some degree.

And even without that guarantee, I don’t think it’s yet time for panic. That would be bad.

It is worth noting—as above—that if you make any interest at all above the Fed rate, you are taking some risk. That is the only way you can get that higher return.

There are no risk-free investments.

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Harrisburg, Pa.: How much do these bailouts threaten our federal government’s long-term financial security. The former Comptroller General is warning we may face financial ruin in 50 years and there are fears this action alone could lower our credit rating and cause inflation. How is this going to affect our Federal government’s financial situation?

Adam Davidson: I do not think we need to worry about our fundamental soundness.

I’m not sure what the Comptroller said exactly.

Our debt is big. It’s not as big—as a percentage of GDP—as Europe’s. It’s too big, though. Definitely.

I don’t think we’re anywhere near the size of debt where we have to worry about a total government meltdown or anything like that.

And any 50 year financial market predictions have about as much validity as any 50 year weather predictions. None.

As our debt gets bigger, there are more US treasury bonds out in the world—they are our debt. So, each additional bond we want to sell is a little less attractive to the world. That means the US government has to pay a higher interest.

Higher interests are associated with lower growth. So, at a quick approximation, I’d say more debt=deflation not inflation. More debt=less growth.

That’s not good. That’s bad.

But it’s a question of degree. This new proposal seems to have the potential to add 10% on to our debt. Probably a lot less than that.

That’s not great. It would be much better if it didn’t have to happen.

But it’s nowhere near a cataclysmic amount. We can handle this.

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Alexandria, Va.: I suspect some good growth after this correction is finished. However, if I reallocate my 401(k) to more aggressive funds in anticipation of this, will that negatively affect the buying while cheap benefit I am getting now (I am 37)?

Adam Davidson: I am not a financial advisor.

I will say this strikes me as a particularly lousy time to be reallocating funds in some agressive way and trying to time the market.

In the best of times, I think almost nobody can reliably predict market movements. But, my goodness, nobody has any idea what is going to happen on Monday, let alone over the next year.

What I’m doing is the standard model: sticking to some conservative allocations among low-cost index funds.

Honestly, I’m not even looking at my portfolio right now.

I do have my paycheck set to automatically contribute to my 401(k) and I am thrilled that I’m buying at a discount.

But switching things around, chasing earnings, that strikes me as a horrible idea.

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Washington, DC: Looking at the big picture, is this the end of the current era of free market ideology? This week has shown us socialism on a scale larger than any in history.

Adam Davidson: I hear this a lot this week. I don’t buy it, to be honest.

The US has always had a mixed-economy. We are, simply, not a free market economy. The government plays a huge role in directing economic activity through the Fed and regulation and taxation and other ways.

Something like a third of the US economy flows through government coffers. And the rest is impacted by government decisions.

The government plays a bigger role in Europe. And, of course, played a much bigger role in the Soviet Union and Maoist China and Saddamist Iraq, etc.

My sense is the crisis of the last year is the result of a lousy mix of government regulation and market excess.

The Fed, Fannie Mae and Freddie Mac, US housing laws, the Central Bank of China, and many other government entitites played a huge and central role in getting us here.

As, of course, did reckless greed on Wall Street.

So, I don’t see it as the end of free marketism. I see it as an adjustment in a managed economy to, we hope, a better managed economy in the future.

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Washington, D.C.: Will this turmoil present a constraint or an opportunity for the next President?

Adam Davidson: I would guess contraint is the key for the first few months and years.

There is going to be huge political pressure to do something. As there was in the 1930s. And, like the 1930s, every interest group will come to town demanding their favorite solution.

And, like the 1930s, some of the outcomes will be good and some will be lousy.

I’m not a political reporter and I find Washington a confusing place, to be honest.

But I wouldn’t want the job.

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Prescott, Ariz.: Seriously. I didn’t hear one punitive aspect to this bailout. I believe I speak for the American people when I say we at least need some guarantee that the people responsible for this won’t be working on Wall Street anymore, and some old fashioned public humiliation is in order. These people basically stole, and as they were doing it, the American people didn’t get a single raise in the last 8 years.

Adam Davidson: I agree that there needs to be a bite to this. We don’t want people walking away with billions.