First of all – bailing out the homeowner = bailing out the lending institutions. It’s pretty much the same thing. In fact, it kind of screws the homeowner into continuing to pay into a depreciating asset, while continuing the cash-flow into the banks’ coffers.
Second – Bear Sterns is not Freddie and Fannie. Backing F&F makes some sense to avoid panic. Not so sure about Sterns.
It would be great to let F&F fail but I don’t think anyone realistically believes that the Fed/SEC/Congress will allow it to happen.
