“It will not affect prices” is not the “wrong response”.
The basic point is that our government is not effective enough to even marshal a token response, much less one that will cost us much money or affect prices. It is able to divert our resources to stay in a state of perpetual war, sell public lands and property cheaply, and to inflate the currency, but the mortgage mess is a much more difficult issue.
At the local San Diego government level, there is simply gargantuan incompetence. At the federal level, there will be far less money spent than on Iraq, interest on the debt, or is lost through inflation.
It is very hard to figure out who exactly needs to be bailed out – homeowners are certainly unlikely beneficiaries. I do believe that the risk is much more diffuse this time around, vs. the RTC days (to include European investors, Asian sovereign funds, etc. etc.), so a concentrated bailout is hard to picture.
The bulk of the losses I believe will be sustained by individual homeowners, banks, and investors. Taxpayers after that, because the problem is too complex and difficult for government to deal with:
