And the fun and games on Capitol Hill will recommence soon. We’re still sorting out what happened yesterday to throw the Paulson bailout plan into a cocked hat.

The spin in the reporting this morning is that Barack Obama hopped up to support an alternative bailout plan proposed by several Republicans. The alternative has had little in the way of review by the Treasury Department, and very little chance of passage at this point.

Republicans are certainly following the mood of the country in rejecting a plan that has been presented as committing $700 billion in taxpayer money to line the pockets of a whole class of thieves and plutocrats.

The Paulson plan, of course, borrows money from global investors by selling Treasury bonds, to buy assets at a price that is likely (perhaps very likely) to end up producing a profit, not a loss, for the taxpayers.

When this episode is all over, one of the questions we will all be asking is: Why on earth did Henry Paulson and President Bush, and everyone below them, create the perception that this bailout plan will involve a direct taxpayer expenditure of $700 billion?

The Republican counterproposal, while interesting and deserving of consideration if the situation were not so critical, amounts to a distraction at this point in time.

Why did Obama raise the point? One suspects a desire on his part not to get behind a real alternative plan, but rather to create a perception that the Republicans are intent on torpedoing the entire process. And this is indeed the way it’s playing so far this morning.

It’s a clever bit of jujitsu, if it sticks. The Democrats appear to be trying to make sure the Paulson plan is enacted, but to force Republicans to pay the political price. Which is ironic, because the Republican reaction more closely mirrors the mood of the people.

This morning, overseas stock markets are down, but not terribly so. US stocks look set to drop maybe as much as 200 points on the open, depending on reactions to the WaMu failure.

One-month dollar LIBOR has jumped to 4.4% this morning from 3.77% yesterday. That indicates that the basic interbank lending markets are largely frozen in place.

At 2AM EDT, five hours ago, the Federal Reserve announced a slight expansion of the swap lines that it arranged with several central banks in Europe last week.

And so we wait. The financial world is in wait-and-see mode, standing on the proverbial ledge, from which they can step back or leap forward. Markets can hold the current position for some period of time, possibly as much as a few days.

But traders are exhausted from the extreme tension, and that frays everyone’s nerves. And each passing day increases the likelihood of some unexpected event triggering an adverse reaction.

-Francis Cianfrocca