| I think some news articles are leaving people with what I believe to be the wrong impression - namely that this is a crisis of liquidity. (ie banks/investors don't have cash on hand) However, I think that's not the real issue - the real problem is entirely one of confidence.
Basically, money is available but nobody trusts the others enough to loan them money at a reasonable rate. The symptoms would be the same, but simply cutting the interest rate wouldn't do much good - and we see that it hasn't done anything so far.
If we think this is true, it'd at least rule out a hands-off approach. A lack of confidence is a huge market failure that likely wouldn't self-correct for a very long time, leaving the country (and potentially the global economy) in a strong recession/depression for years. That's really not an option. So it's only a question of WHAT can be done, not IF anything should be done. I guess there are hundreds of economists around the world working on the "what" and some progress has been made already.
I'm very worried about upcoming downgrading of AAA debt. That's likely going to lead to billions of dollars in write-downs again and cause right another crisis of confidence. The Fed seems to try and prevent this by allowing banks to offload that onto the fed itself. That could work. (the fed doesn't have to publish downgrades, banks do)
I think people need to get over the principle of fairness - who cares if it's fair? Some companies may get bailed out that shouldn't be and it's likely going to cost the taxpayer money... you could waste money worse. Fairness doesn't do you any good if unemployment rises, you spend the next 5 years looking for a job and people still get thrown out of their houses.
If it comes down to spending a couple hundred billions and getting out of this with a blue eye versus spending years in a recession (or worse a depression) it's a pretty simple choice. Oh yeah: failing banks would also mean the FDIC got stuck with a huge bill. That's going to cost the taxpayer also. | 