Dealhunter…Not so sure I agree… Left to recover on it’s own devices one may argue that the following will occur:
1 – The market will correct much faster because the depreciation will be that much sharper.
2 – The sharper depreciation will lead to a much fast consumption. As you would agree, the amount of money currently on the sidelines is indeed staggering.
3 – You are also conveniently sidestepping the continuation of letting current homeowners continuing to live in the home that they never could afford to begin with.
4 – Nothing is free. Measures like this do one thing. They INCREASE RISK to lenders who lend money. There is no argument and to believe that this will not increase the risk premium of lending money is naive.
I am not proposing scrapping capitalism. In fact socialistic moves like this are very much contrary to capitalism wouldn’t you think? Measures like this do nothing to help markets, they simply will inhibit the free movement of markets. One should not forgive debt, one should let the market operate freely. Not only will this weed out inefficiencies, it will give birth to innovation, stronger companies, and insure that better more efficient entities survive. Otherwise you get what is known as the airline industry. An industry that suckles off subsidies for survival because it has not had to compete to survive.
Finally, make no mistake about it… these sorts of bailouts are as cosmetic as things get. It doesn’t matter who stays in a home and who does not. It doesn’t even matter if some lenders go belly up or not. What is more important is that there is so much investment in the secondary market… in cdos, mbs… that sort of thing, that basically we may have reached the point where we actually cannot let the market act efficiently. That the shock to pensions, 401ks, municipal and state government investments, etc… would be so harsh (because of their investments in these investments) that there would be problems like we have never seen…
So maybe you are right, but for the wrong reasons. Just my cynical opinion…
