Even the New York Times has figured it out. Well, at least one columnist. Joe Nocera writes:

By week’s end, I was more depressed about the financial crisis than I’ve been since last September. Back then, the issue was the disintegration of the financial system, as the Lehman bankruptcy set off a terrible chain reaction. Now I’m worried that the political response is making the crisis worse. The Obama administration appears to have lost its grip on Congress, while the Treasury Department always seems caught off guard by bad news.

And Congress, with its howls of rage, its chaotic, episodic reaction to the crisis, and its shameless playing to the crowds, is out of control. This week, the body politic ran off the rails.

There are times when anger is cathartic. There are other times when anger makes a bad situation worse. “We need to stop committing economic arson,” Bert Ely, a banking consultant, said to me this week. That is what Congress committed: economic arson.

How is the political reaction to the crisis making it worse? Let us count the ways.

He notes the pitchfork crowd in Congress is destroying AIG’s value and distracting from more central concerns. On the bonuses themselves his view is:

Even on Wall Street this week, I didn’t hear anyone condoning the A.I.G. bonuses. They should never have been granted, and Mr. Liddy should have been tougher about renegotiating them. (A rich irony here is that any nonfinancial company in A.I.G.’s straits would be in bankruptcy, and contracts would have to be renegotiated. The fact that the government is afraid to force A.I.G. into bankruptcy, despite its crippled state, is the main reason Mr. Liddy felt he couldn’t try to redo the contracts.)

So where does this lead us? Nocera doesn’t quite say, other than that he’d like Congress to stop grandstanding. Good luck with that.

The free market has gotten its share of criticism lately. And yes, bubbles happen (especially when fueled by monetary policy gone wild), and investors and managers make mistakes. But, as Nobel Prize winning economist Gary Becker says: “When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world.” Moreover,  markets correct, albeit sometimes painfully.

What correction is there for Congress and a White House run amok? Ultimately just the good sense of the voters who can adjust course at the next election. I’m sure they’ll have put down the torches by 2010.