The argument over the health of financial markets has careened across the economic tarmac like a car driven by a drunk. The shouting and wailing reached a fever pitch after two of the five big investment houses — Lehman Brothers and Merrill Lynch — collapsed in a span of only two days, and before anyone could catch his breath, insurance giant AIG had to be bailed out by the Federal Reserve. Something had to be done, and quickly.

Secretary of the Treasury Henry Paulson and his advisers crafted a $700-billion bailout plan by the end of the week, and on Monday, Sept. 29, the U.S. House of Representatives told them to get stuffed. In response, the stock market abruptly tanked, falling by 778 points. Then, the House leadership promptly changed direction again by playing Monty Hall and hammering out a bailout deal, spiced with $150 billion in pork, that passed on the following Friday. Everyone breathed a big sigh of relief and thought that all was well in Mudville.

Not so.

Wall Street swerved wildly once again on Monday, Oct. 6, shedding about 800 points at one point, before rebounding to close at 9,962.03, or down 3.5 percent for the day. The rest of the week followed the same pattern: up, down, up, down … but mostly down. By the end of the week, the Dow Jones Industrial Average had settled in at 8451.19.

Clearly, traders have yet to feel confident. Why? Two problems. One we already know: The “plan,” even with revisions, is deeply flawed. The second problem has not been mentioned all that much because it’s pretty scary: Put simply, we have no idea what we’re doing.

We don’t know what we’re doing for two reasons. First, this crisis is unprecedented in its scale, scope and type. It’s not a 1929 collapse, it’s not a 1987-type slide and it’s not the S&L scandal of the 1980s. Elements of each can be found in the current turmoil, but this brew has new ingredients; because it grew out of thousands of shaky loans, which then were bundled into tradable securities, and then sold hither and yon, its roots are far more extensive than anything we’ve seen before. Moreover, it’s larger than either of the 1980s economic stumbles. So far it’s evolving more slowly than the 1929 Crash. And now, to make matters worse, foreign markets have caught the contagion. In this case, misery would have been far happier without company.

The second reason relates to the first. The bad loans at the base of the matter have not really been accounted for; that is, we don’t know how many there are, how bad they are, how much we might be able to recover from them, how extensively they have insinuated themselves into the financial sector. Unless and until we figure all this out, we’re flying blind. We’re guessing. So whatever you hear from Hank Paulson, his new lieutenant in charge of crisis management, Neel Kashkari , anyone in Congress, or any other commentator for that matter (even me), be sure to take it with a grain of salt. Maybe a fistful.

In the wake of the full-on takeovers of Freddie Mac, Fannie Mae, IndyMac and AIG, the situation may begin to change. We now have access to records and data at the granular level needed to assess what happened and, as important, where we really stand now. Having this information under public control, where it can be shared and circulated, increases its value by getting it into as many of the right hands as possible. This aspect of the Freddie and Fannie takeovers has yet to be reported on in any meaningful way in the financial or mainstream press.

Keep in mind that other takeovers — Bank of America’s buyout of Countrywide and Merrill Lynch, Wells Fargo’s just-approved buyout of Wachovia, and JP Morgan’s purchase of Bear Stearns and WaMu — do not yield a body of data that will be shared. It’s all proprietary. Whatever we learn about how bad things are in these cases will come indirectly through business maneuvers, or through legal means, as with the agreement that B of A brokered with 11 states, including California, Illinois and Florida, in a settlement over deceptive mortgage practices at Countrywide, which B of A bought in June.

Even though the feds have access to good information now, it doesn’t mean that the way out of this mess will emerge straightaway. This is a gigantic amount of information to parse, and making sense of it will be hard. Moreover, the government currently lacks the capacity to assimilate this much information and to figure out what to do with it. However, Washington must somehow develop the capacity to dig through the information, organize it coherently, begin to develop sound, useful analyses based on what is uncovered, and then use these analyses to craft policies that bring relief to those in distress. Failure to do so will mean that we will continue to fly in a fog, seizing on ideas and “solutions” willy-nilly without a comprehensive view of the problem at hand and how to address it. This kind of cavalier approach to policy-making landed us in hot water in the first place. It cannot help to extract us.

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