Before winning this year’s Nobel Memorial Prize in Economic Sciences, New York Times columnist Paul Krugman had been passed over for the Pulitzer Prize in 2002, 2003, 2004, and 2006. Come the next round of Pulitzers, in April, we’ll see if the journalistic savants at Columbia were able to figure out that Krugman also wrote the single most important newspaper column of this fall’s meltdown. When the financial press was calling for immediate passage of Hank Paulson’s now-infamous three-page bailout plan, Krugman spotted its fatal flaw.

In a scathing column on September 22, Krugman noted that Treasury Secretary Paulson had the wrong end of the stick. At the time, Paulson wanted unilateral authority to buy up $700 billion worth of toxic mortgages from his bankrupt buddies on Wall Street. Krugman quickly saw that another round of debt bundling would fail to inject cash into the credit markets. “The financial system needs more capital,” he wrote. “And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to—a share in ownership, so that if the rescue plan works, all the gains don’t go to the people who made the mess in the first place.”

In subsequent columns and blog posts, Krugman laid out a strategy to infuse cash into the frozen credit markets by having the government buy stock in depository banks of the traditional sort. Unlike investment banks, such as Lehman, depository banks are insured and regulated. By buying stock that it could later resell, the government would create a chance for taxpayers to be compensated for the cost of the bailout.

But Paulson initially insisted that his $700 billion had to be used on toxic mortgages instead of bank stocks, thereby throwing good money after bad. How did Paulson get it so wrong from the start? It had to do partly with the U.S. Treasury Department’s ignoring (or, God help us, not understanding) a stopgap mechanism commonly used around the world. In such cases, the lesser of evils is for the government to recapitalize the major commercial banks by taking temporary ownership of them. Asked why Paulson was so intransigent, Krugman speculated that Paulson, who is regarded as very smart, may have been playing to what was left of Bush’s ideology. Then Krugman offered another reason, which hearkened back to investment banking’s hubristic Masters of the Universe period. In the ’90s, the central myth of investment bank infallibility seduced all but a few Manhattan business reporters, and judging from their initial broadcasts on the current crisis, a lot of journalists at MSNBC, CNBC, and CNN were of the same mind.Goldman Sachs—the House of Paulson, Robert Rubin, and Jon Corzine—was infallibility central.

“it was the goldman sachs thing, the belief that with a lot of fancy footwork, you can do things that make no financial sense,” Krugman told me of his first reaction to the Paulson plan. “People in the financial industry make hundreds of millions doing this sort of thing”—that is, repackaging bad debt as financial instruments—“but it doesn’t work in an international economic crisis of this scale.”

“That first day, it took me a couple of hours to figure it out. I sat down and tried to sketch out for myself what was missing,” Krugman said. For whatever reason, he realized, Paulson was ignoring the most basic step in international economics for recapitalizing failed banking systems. The United States bought up equity in the savings-and-loan crisis, as did Sweden and Japan in their own meltdowns. “What everybody did was come in on the equity side, not the debt side.”

Krugman, a modest man known for the elegant simplicity of his economic thinking, does not claim to have discovered anything new. He says the plan to stabilize banks by using taxpayer dollars for a temporary government ownership stake in major financial institutions took a basic page from the global-finance playbook. From the moment Paulson testified to Congress in late September, blogs and esoteric websites (like VoxEU) favored by international economists were buzzing with the same advice. The Treasury should buy stock in American banks. Recapitalizing the banks in this way had the added benefit of being far less socialistic than Paulson’s program of giving handouts to incompetent bankers. We expect Washington in general, and this administration in particular, to be slow on the uptake, but why did it take our financial news shows and business pages so long to get behind this obvious solution?

Before I get to that, a bit of personal disclosure is in order. Around 1999, New York Times publisher Arthur Sulzberger Jr. told me he wanted to hire the first full-time economics columnist in the paper’s 150-year history. It was a dream job. A Times economics columnist could hold sway in his field the way James Reston did on politics or, more recently, Thomas Friedman did on foreign policy. As editorial-page editor at the paper, I took the train up to Cambridge to recruit a young Harvard professor whose work I had seen on Slate and elsewhere. So factor into my praise for Krugman whatever bias arises from my having recruited him for the Times. While I am proud of his work, he and I did not go on to become close pals; we had not spoken in more than five years when I called to congratulate him on the Nobel.

We reminisced over his initial doubts upon being offered the Times job. Back then, I amused Sulzberger and other colleagues by quoting Krugman’s jittery initial response to our offer: He was afraid that dirtying his hands in daily journalism would ruin his chances of winning the Nobel Prize. He went on to explain, with an innocent candor seldom encountered in New York or Washington, that aiming at a Nobel was not the long shot for an economist that it would be for a novelist or physicist. The talent pool is much smaller in economists’ tight little world and, indeed, the Royal Swedish Academy of Sciences has been criticized for having a lower bar for economics laureates than for those in physics or chemistry (the other two disciplines for which it awards prizes).

“If you don’t take it,” I told him about the Times post, “you’ll always second-guess yourself about what might have been.” Even I was surprised at how quickly this nebbishy fellow became the bête noire of the right, enraging the George W. Bush crowd with his economic criticism and many other conservatives with his column and later his passionate blog, Conscience of a Liberal. At first, some of us at the paper were dismayed that Krugman seemed more drawn to bare-knuckle political commentary than to scholarly explanations of economic theory. Reminiscing about that time, Krugman said his shift surprised him as well; it seemed morally necessary as a response to President Bush’s transition from “compassionate conservative” to numskull. “It wasn’t me; it was the world,” he chuckled. “Remember, in 1999 the business of America was business. Very corrupt regimes were something that happened in other countries.”

Almost immediately, newspapering upended his quiet life in academia. “Hardly a morning goes by without me wishing I hadn’t been offered the column in the first place,” said Krugman, who has since joined the Princeton University faculty. “But I’ve never regretted taking it. Who knew?”

Krugman says the Wall Street meltdown has freed him somewhat from the political rages that dogged him through the Bush years. “The financial crisis was up my alley. My wife, Robin”—also an economist at Princeton—“says I’ve been a lot happier since it began.”

Traditionally, the White House holds a reception for every American who wins a Nobel Prize, and Krugman’s award was for scholarly work on international trade theory that had nothing to do with his adversarial Times columns. So has the White House set a date for honoring Krugman? “I haven’t heard from them,” he said at the time this article went to press. “If they did it for Al Gore, I guess they could do it for me.”

While the financial crisis acted as a tonic for Krugman, following the press coverage and the shrinking of my modest investment portfolio has been less fun for me. My wife, Krystyna, and I were on a long-planned fall road trip through the more remote parts of the Dakotas, Saskatchewan, and Montana during the first three weeks of the storm. We were news junkies cut off from our usual Eastern newspapers. So, driving across the seemingly endless vistas of a bumper wheat crop, we relied on satellite radio links to the financial reporters of National Public Radio and the cable-television news networks. We quickly came to identify the senior business correspondent of CNN, Ali Velshi, as a pacesetter on this story.

As a former political reporter, I wanted to know about the Republican Party’s abandonment of market triumphalism, to use the New Yorker’s phrase. But Velshi had little interest in what he later described to me as the “academic” story of how Paulson and his M.B.A.-holding boss had trashed the principles of free enterprise. “There’s a fire going, and it’s got to be put out,” he said by way of condemning the House of Representatives for its initial vote against the Paulson plan. “This is a really bad week to be putting all of your principles in front of you right now, because the market doesn’t work on principles,” he barked when CNN anchor Kyra Phillips fretted timidly about Congress approving “golden parachutes” and “high-paid C.E.O.’s.” “The problem here, Kyra, is that I fully understand why some people don’t like this. I have been sort of saying to people, ‘You have to close your nose and swallow it.’ ”

Bitter-pillism spread through the network news shows and the print media. On NPR, Steven Pearlstein of the Washington Post pummeled those who opposed giving Paulson “enormous power” to cover bad mortgages. “There’s no other way to do it,” Pearlstein said. A Fortune article used the term “class fury” to describe the public’s possible reaction to the suggestion that it bail out Wall Street. Conservative Republicans like Senator Jim DeMint of South Carolina, who didn’t want the G.O.P. to embrace “socialized risk” for Wall Street firms, were given the pro forma coverage reserved for quacks.

All this, it seemed to me, veered beyond advocacy journalism into what could be termed conviction journalism—sometimes admirable for its sincerity but often alarmist in tone. As Velshi later told me, he saw this as a 9/11 moment for the American economy. Our security systems had collapsed. It was necessary to act immediately, even if what Congress did was as imperfect as the Paulson plan. “The ‘it’ was sort of my focus, not the ‘what,’ ” he said. He foresaw a massive loss of jobs and a collapse of the business-credit system if lenders had to wait for a market correction to punish Wall Street. “So my advocacy was not about this deal,” he said. “It was about the need to do something quickly.”

Newsrooms often vibrate with calls to arms in an apocalyptic atmosphere. After all, Edward R. Murrow didn’t use his broadcasts from the burning rooftops of London to call for new diplomatic overtures to Hitler. But I don’t argue with press critics who said that cable television somehow fed the economic hysteria that brought record drops in the Dow. In any event, the story that most everyone missed during all this flapping was that Paulson was doing a 180.

As late as September 23, he had pushed aside the idea of investing in the banks, opting to buy their bad assets instead. His dismissive comment almost seemed targeted at Krugman. “Some said we should just stick capital in the banks,” Paulson said. “That’s what you do when you have failure. This is about success.” It was the sort of contemptible thing, he told Congress, that the Japanese would do. By his October 15 appearance on NBC’s Today, Paulson had redefined success. The Treasury was now going to save the banks by buying their preferred stock, potentially unfreezing the credit lines.

I give credit to the Wall Street Journal for finally connecting the dots on October 14, in a story about the Treasury Department’s new plan, announced after weeks of ad hoc solutions. However, I would have put the story on the front page instead of burying it inside. Halfway through the article, it was noted that Fed Chairman Ben Bernanke had favored recapitalizing the banks all along. You may not be surprised to learn that Bernanke and Krugman were acquainted at M.I.T., where they earned their doctorates. Bernanke’s area of expertise? The Great Depression.