What do a magic wand, a video game, and liquidity have in common? Here is more or less how it works:

Fed Chairman Ben Bernanke: “Whoosh. Whoosh. Whoosh. I hereby wave my Magic Monetary Wand three times and create $38 billion in liquidity to bail out big investors in volatile markets.”

Big Boys (Hedge Fund Managers, Derivatives Speculators, Risk-loving Banks, Highly-leveraged Investment Firms, and High-yield-seeking Pension Funds): “Thanks, Ben. Now we can continue with the looting for a little while longer.”

Reality: “But, but, but...isn't that $38 billion just a digital signal of intent, sort of like a move in a multi-player video game? I mean, there isn't anything real about that $38 billion, is there? It's just bits on the Fed's central file server, digital money created by fiat out of thin air. And doesn't creating digital money out of thin air threaten to increase already rising 'headline' inflation and to accelerate the ongoing decline of the dollar against other currencies? What's that vague memory I have about Gresham's Law?”

Bernanke: “Shhhh. This isn't about reality. It's about confidence. As long as the Big Boys consider the pyramid to be sustainable, it will be sustained. My job is to sustain it for as long possible so that the looting may continue. Now just shut up, so that the Big Boys can continue to make their speculative millions and billions unimpeded, while they avoid ever paying more than 15 percent of the net in capital gains taxes. My job is not to deal with reality. My job is to create reality. The White House told me so. And we'll blame the Democrats if the bubble bursts.”

Reality: “What about addressing the underlying structural problems, like low savings, deindustrialization, the current account deficit, the federal budget deficit, decaying infrastructure, inadequate health care, faltering public education, and the increasing disparities of income and wealth?”

Bernanke: “Nah. Solving those problems would require ingenuity and sacrifice. All that we know how to do is wave the Magic Monetary Wand. It has worked up until now, hasn't it? Besides, Dick Cheney said that 'deficits don't matter.'”

Big Boys: “Yes indeedie. Let the good times roll! All is for the best in this best of all possible markets. Pass around the cigars. Another cognac, perhaps?”

Reality: “Thanks, Ben. Thanks, Big Boys. Just askin'. But could you explain once again how the subprime securities market and the various kinds of derivatives markets are different from an old-fashioned Ponzi scheme?”

Bernanke and Big Boys: (in unison) “Shhhh.”