People seem to think that this is a Wall Street bailout, a life preserver thrown to rich guys who caused all the trouble in the first place. I think there will be plenty of time for recriminations once the smoke has cleared. But meanwhile I want to emphatically make the following point.
THIS IS A BAILOUT OF MAIN STREET TOO!
If Wall Street and the global banks fail, so will your local bank and your money market fund where you think you have your savings safely squirreled away for a rainy day and your retirement. NO ONE will escape the ruin that would follow from a rash of bank failures in the current climate. Worse, once the banks fail the economy would grind to a halt and unemployment would skyrocket - a true Great Depression scenario. Not only would you lose your all your savings, you would lose your job too!
Ben Bernanke, the man who, along with Henry Paulson, is trying to stave off disaster, is an expert on the failures of fiscal and monetary policy during the great depression. That depression occurred precisely because taxes were raised by congress and the money supply was allowed to fall by the Fed when the banking system started to fall apart. The slogan then was "let the free market do its work and clean out all the dead wood and speculators and risk takers- don't bail them out - don't print money or run a fiscal deficit". Sound familiar?
So the free market did its work, pushed by Congress and the Fed. The result was a 10 year depression and 25% unemployment.
Is that what people want to happen now? It seems so because such a repeat of the Great Depression is precisely what will be in store for us if Bernanke's and Paulson's efforts are thwarted and financial institutions allowed to fail. If you don't believe me look what happened when Lehman Brothers was allowed to slide into bankruptcy. A run on money market funds, for one thing. A near collapse of Goldman Sachs, the best managed investment bank in the world for another. Do you think your bank will be far behind if Goldman were to fail, if Citibank were to fail?
Let's get real, folks. This crisis has hurt a lot of people, but if we want to get through it without even more pain and suffering the Bernanke-Paulson plan is the only game in town.