I’ve been watching the current fiscal crisis affecting the American banking industry unwrap itself and the attendant ham-handed attempts by the White House to deal with it.

The tragedy of this mess is that most Americans, including the president, don’t seem to know what it is and how it affects the national economy. For that matter, neither does the Fourth Estate, which is responsible for countering the white noise of White House hyperbole with cold, hard analytical reportage.

In the autumn of 1929, a frenzied decade of stock speculation came to a dramatic conclusion when companies on the New York Stock Exchange lost roughly 40 percent of their value in a two-month period. At the time, only two percent of Americans held equity positions in public companies.

So why did the banks collapse?

Because the mostly unregulated American banks used their uninsured deposits on equity bets in the stock market. When share prices collapsed, the savings of depositors evaporated. By 1932, one-fourth of American banks no longer existed, and nine million Americans had lost every dime. During the Great Depression, national unemployment reached 26 percent.

In 2000, outgoing Sen. Phil Gramm (R-Texas) attached a 262-page rider to an appropriations bill to deregulate derivatives trading and other complicated financial instruments like collateral debt obligations.

This was the effective nail in the coffin for the FDR-era Glass-Steagall Act, which put into place a number of banking regulations and created the Federal Deposit Insurance Corporation. The purpose of the Glass-Steagall Act was to prevent a repeat of the crash of 1929.

Now Americans find themselves with a problem of biblical proportions for the simple reason that the banking industry didn’t think it needed supervision anymore. It used the arrival of Ronald Reagan with his distaste for government “interference” to open credit markets to dubious individual and corporate borrowers.

The situation requires some sort of government intervention, and I understand that even Ray Charles could’ve seen this coming. I think a few things should happen with this bailout.

The banks should be forced to write down their losses as accurately as possible and issue warrants to the U.S. Treasury in exchange for assistance. It won’t be easy because I’m not sure housing prices will bottom out until at least 2010.

The stockholders of these banks need a large dose of tough love. When the Treasury Department decides to sell a bank’s distressed assets, then the Treasury gets paid first. Nobody put a gun to their heads to make investments, and it seems to me that a lot of them need to be reminded of the Darwinism inherent to capitalism.

In legislating the bailout, Congress needs to ensure that the Treasury is in a position to recoup its money by selling distressed assets in the open market. And Congress should require these banks to use their own money first for recapitalization before they receive federal guarantees. This puts the Treasury, and by extension you and me, in a position to be able to reap a possible profit for the investment when the banks are able to go public again for further capitalization.

If our elected representation would stiffen their backbones, this kind of structured arrangement could take some of the heat off U.S. currency values and get nervous consumers spending and investing again.

I don’t want to suffer the ravages of a 20-year recession like Japan did after its real estate market imploded years ago.

It’s our responsibility to demand a better deal. Besides, following the lead of this president once already has cost us $10 billion a month and almost 5,000 dead Americans in Iraq and Afghanistan over the last seven years.