basically, what they are saying is that as the market wakes up to the poor lending of the last 10 years, the fed can basically only provide short-term liquidity, but cannot do anything about fundamental insolvency of the counterparties involved in the large-scale mortgage-bond markets.

You are right. Another way to go would be to "tolerate some inflation" by a "managed" reduction in the value of the dollar. Of course, that's liable to blow up into some form of hyperinflation.
Changing the subject. Congratulations for scooping me on the FT's end of empire piece. I was literally burning charcoal (great energy source), yesterday. Anyway, we both seem to monitor the FT. Should we look for ways to eliminate duplication of effort and cover for articles missed? I assume you are using Clipmarks as a serious tool.
I am looking for serious users with whom to collaborate. Clipmarks itself makes collaboration virtually impossible. So here is my email: trendmonitor2@yahoo.com