Ackman thinks that the financial rescue of the banks, a plan which has been carried over from the Bush administration, is wrongheaded. And months before his meeting with Summers, that began to concern him. “I always thought the country would survive Washington. Now I feel like I have a civic duty if I have a decent idea for how to solve a financial problem,” he tells me.

A few weeks later, we speak again. “I’m so busy it’s driving me crazy,” he says. “Every day I don’t get this plan out, I feel the country is going to ruin.” In unguarded moments, he has a tendency to become grandiose. In public settings, he’s learned to restrain himself, speaking in interviews with a curious calm.

Ackman believes that the financial-system bailout has been flawed. The government has put taxpayer money into financial institutions at the wrong time and in the wrong place within their capital structures.

So far, we’ve aimlessly given billions to banks. That money could wind up going toward bonuses, dividends, or interest payments on debt, merely delaying the inevitable failure of the insolvent ones. Many economists argue for more aggressive nationalization of insolvent banks, but policymakers have been reluctant to take that route, wary of harming bondholders. Ackman wants these creditors turned into the equity holders of insolvent banks, through carefully adjudicated reorganization processes, before the government ponies up more money.

Ackman and Porter also worry that Treasury Secretary Tim Geithner’s rescue plan is overly focused on shoring up the securities and derivatives tied to mortgages. Instead, the duo would target the mortgages themselves in a way that they contend would be cheaper than the government’s approach. Ackman likens the situation to a $100,000 house with a million-dollar insurance policy. When the house burns down, rather than paying off the policy, the house should just be rebuilt. Ackman’s idea is to have the government offer to buy defaulting mortgages for 50 cents on the dollar. Such a guarantee would put a floor under the market and induce the owners, most of which are mortgage-servicing companies, to sell to the government if they can’t find better deals elsewhere. If values in the mortgage market stabilize, the result will be a beneficial cascade through the value of all those securities and derivatives. Leverage got us into this mess; Ackman wants to reverse it to get us out.

Even as the hedge fund business implodes from its own hubris, Ackman’s three main funds, which are separate from the Target fund, are doing okay, relatively speaking. They were down between 11 and 13 percent last year, much better than the average for hedge funds; he ended up with $4.4 billion under management. As of late March, his main funds were up about 3 percent, while the market had fallen double digits.

Ackman, the son of an affluent commercial-mortgage broker, spent his childhood in Chappaqua, New York. At Harvard Business School, he came off as bright, though sometimes a bit to the manner born. During a case study of Steinway & Sons, the pianomakers, he told the class that he had several pianos, seeming to assume that everyone else did too. (Ackman’s family owned two Steinways and a Yamaha, but they had inherited all three.)

He would say back then that his goal was to allocate as much of the world’s capital to himself as he could so that he could then reallocate it in the way that he thought was best. “He was a larger-than-life guy and came across that way, even in business school,” a former classmate recalls.

Soon after he graduated, he and a classmate, David Berkowitz, formed Gotham Partners, an investment firm. They shared an apartment to save money. One of the bedrooms was much larger than the other, and the two budding Masters of the Universe decided to have a closed-bid auction to figure out who would get the better room. Each wrote down the portion of the rent he was willing to shoulder to win the larger spot. Ackman remembers that he convinced Berkowitz that he badly wanted the big room when actually he was content with the smaller one. He contrived to drive up Berkowitz’s bid, making his part of the rent a fraction of his partner and roommate’s.

Ackman entertained the notion that he and Berkowitz might be able to raise tens of millions of dollars for Gotham’s launch—and he managed to talk his way into meeting with many of the wealthy and powerful moguls that he’d set his sights on. He pitched real estate scion Tom Durst and proposed three investment ideas to demonstrate Gotham’s research capacity. Durst declined to invest with the firm but then, according to Ackman, put his own money to work in the companies that Ackman and Berkowitz had recommended. After each had big gains in a matter of months, Durst came back to them and agreed to put money into their fund.