The Huffington Post’s Arianna Huffington struck a nerve in the American public when she suggested on Dec. 29 that we take our money out of banks that are “too big to fail” and put it into community banks or credit unions.

In other words, vote with our pocketbooks against the venal, corrupt institutions that caused the U.S. economy to crater and were rewarded with billions in taxpayer bailout dollars to save them from the consequences of their short-sighted greed and folly.

Welcome aboard, Ms. Huffington. We walked away more than a decade ago. We have two checking/savings accounts. One is with the Fort Worth City Credit Union, which my partner can use because her grandfather was a Fort Worth city employee for decades. We opened that account back in 1989.

A decade later, we moved our second account from Bank of America to a credit union serving residents of our small Texas town just south of Dallas. It was a minor pain in the keister to move the money. The satisfaction of blowing off BofA was priceless.

The BofA account did not start out at BofA. It began in 1981 at First National Bank, a Texas-based institution that, like most large Texas banks at the time, served consumers as an afterthought but really cherished commercial business. Then the 1986 oil crunch hit, and FNB became First Republic, merging with its statewide rival in a desperate bid by both parties to remain solvent.

The years passed. We watched as a larger regional player stepped in to acquire InterFirst before it swooned into bankruptcy. That regional powerhpouse was, in turn, snapped up by BofA. Along the way, customer service evaporated, fees for everything exploded, and we finally cried, “Enough!” and left in sheer disgust.

That was at the height of the 1990s dotcom boom.

We have never looked back. The service is great at both of our credit unions, and the one in our town, which deals with us on a day-to-day basis, knows our names, and refuses to deliver check refills to our home out of concern about identity theft. (Instead, the CU has the checks delivered there and calls us to come get them.)

Any money we subsequently earn will go into credit unions or small local banks. Once we pay off our credit cards, we will look hard at how to ditch plastic, too, and go all cash.

BofA never noticed or cared about losing our meager dollars. But if thousands and maybe millions of us make the effort to walk away, it will hit the big boys in the only place they can feel–their pocketbooks.

First the $850 billion bailout was intended to purchase questionable mortgage-related securities.

Then Treasury Secretary Henry Paulsen announced plans to invest directly into banks, which promptly sat on the money or gave their top executives big bonuses instead of starting to make loans again.

Now, in yet a third course correction, Paulsen says the rest of the bailout bucks (400 billion of them) will focus on consumer debt, nonbank financial companies, and homeowners facing foreclosure.

No, the Bush administration has not (finally) developed an actual case of compassionate conservatism. It’s that all those troubled mortgages repacked into bonds simply don’t exist. You read that right. They are figments of Wall Street’s imagination and boundless greed.

Michael Lewis, author of Liar’s Poker, reveals the full extent of the mess in an article that should be required reading for every current and incoming member of Congress and the administration of President-elect Barack Obama.

Bottom line: $850 billion–or all the money in the world–won’t work because there is nothing to bail out. It’s all smoke and mirrors. The real end of Wall Street cannot come a moment too soon.

Now what?

The U.S. House of Representatives sent D.C. and Wall Street into convulsions by refusing to pass the Bush bailout even with modifications negotiated by the Democratic leadership. (Perhaps there’s life in our republic yet.)

Trickle up economics, that’s what. Let’s keep our eyes on the ball here. The real foundation of the current mess is the deflation of housing prices that were propped up artifically in the bubble ignored and/or denied by the very experts in charge of the rejected so-called solution.

The air is still going out of home prices, although the rate of decline has slowed over the last three months. See the latest figures from Standard & Poor’s/Case-Schiller 20-city housing index released today.

If we want to stem the crisis and help Main Street, then the solution is obvious. Set up a government mechanism to review existing troubled mortgages and rework them so that the owners of the homes (provided they also live in them) can afford a new monthly mortgage payment. Those houses with troubled mortgages not occupied on a daily basis by their owners would be subject to much stricter reworking rules.

The government can also inject capital into troubled Wall Street businesses in return for a part ownership position and temporary management authority–the same way private investors operate. This gives taxpayers a real shot at a return on their tax-dollar investments future when the government sells its stake in the future.

This trickle-up approach immediately will help restore neighborhoods lost to the blight of foreclosure, and eventually stablize the finances of troubled investments banks and securities firms that bought into exotic and toxic investments backed by questionable mortgages.

That’s the way to proceed because it does not reward Wall Street for its greed and total failure to self-regulate.

Next Step: Undo degregulation with more nimble reregulation that is adapted for 21st century electronic exchanges. This can and has to be done to restore long-term worldwide confidence in the U.S. economy and markets.

Respected economist Dean Baker gives the modified bailout–ooops, that’s “buy-in”–a huge thumbs down this morning.

His reasons for opposing it make a great deal of sense amid the same kind of alarmist blather that preceded and precipitated the  U.S. invasion of Iraq.

Even in its altered form, this bailout is essentially the economic version of the way the Bush administration pressed for invasion. That alone makes it suspect.  It’s the classic Bush M.O. Distract and dismay with a specter of some kind of imminent doom and then shovel money to your cronies and campaign donors.

Additional economists have also expressed strong reservations about the modified bailout and say there are ways to stabilize Wall Steet without putting taxpayer money at risk. These are worth a shot before handing over to the Treasury Secretary the enormous power  bestowed by this bailout plan–especially when there is no guarantee that it will stave off the steep economic downturn that it it supposed to avert.

The Democrats cave again–and we’ll all rue the day.

There’s more than one way to avert a nasty economic slump.

Kudos to McClatchy Newspapers for a very different take on the proposed Wall Street bailout.

Reporter Kevin G. Hall quotes economists and analysts who doubt that the Wall Street-oriented proposal will actually stave off a deep recession.

They include James K. Galbraith at the University of Texas, Simon Johnson at MIT,  Kenneth Rogoff at Harvard, and Ed Yardeni.

All four think the proposal is flawed and rushed, and point to better and cheaper ways to restore enough confidence so that banks are willing to lend again at reasonable rates.

Why not do what the federal government did during the Great Depression? It would probably cost no more than $700 billion just to buy up homes in forclosure and rework the mortage terms so that the current owners can remain in them.

This approach would definitely help Main Street, and since the problems on Wall Street originate with investments backed by shaky mortgages, it will help there as well. Trickle-up economics, for a change.

Then we have to get back to across-the-board financial industry reregulation so that the same problems don’t pop up down the road.

To do that, however, we’ll have to elect a Democratic president as well as Senate and House of Representatives.

In his own words, the Republican candidate is “fundamentally a deregulator” and helped push the deregulation laws that helped get us into this mess in the first place.