Quote Originally Posted by Frog
It means, again, that the tax payer who isn't rich enough to have fancy deductions, will be bailing out the rich so they can stay rich.
I agree this isn't necessarily the best thing in the world, but I honestly can't agree with the idea that this somehow helps the rich. Bailing out the banks and mortgage companies helps everyone (by not sinking the world economy into a HUGE depression), but the people who are really being saved are the middle and lower classes who couldn't afford to pay their mortgages. The home foreclosure rate got up to, what, right around 5% maybe? That's not good, but by no means out of hand. But if all of a sudden all these financial institutions call everyone in default b/c they're cash short (and they are owed by those persons in default - ie, poor and middle class), then the people who are going to get screwed the most would be the poor and middle class. All of a sudden, you have thousands, maybe a million homes foreclosed, cars repossessed, etc. That would be the market solution, and frankly, if you owe somebody and you don't pay, that's their legal right.

What the government did, however, was done for many levels. The most important was preventing a global depression on a scale we've never seen. AIG reportedly held over $1 trillion in assets around the world. A company of that size folding would be disaster. I think everyone can understand that. But there was no way getting around the fact that these companies needed cash and they needed it immediately. There are only two ways to do that, and it's either as above or to get a loan. Well, the money markets were just about frozen because no one else had any cash either. So, the government stepped in and "loaned" it to them. It's really more of a contribution to capital, though, so in effect the government just became a (whatever amount) percentage owner in the companies it bailed. In doing so, they spread the burden to the entire populous instead of forcing the poor and middle class to have their loans called and/or sending the world into depression.

Now, how we got into this situation is already done and dusted, but the reality is that if there weren't government-imposed equal lending laws that force banks and lending institutions to make risky or worthless loans, the entire situation would never have occurred. But, alas, there are liberals who think everyone who wants a house should be able to get one regardless of his inability to pay because he only works 3 months a year at McDonalds. Lending institutions, in relation to their relative size and holdings, are required to make a certain percentage of loans to such people, even though it is almost certain to never be repaid in whole. Those policies have been around for years, and as you may guess, they were Democratically created "social policy."

That's the root of the problem, but of course politician will never blame themselves, and of course the media will never blame them either. So, they place the blame on the institutions who were, in essence, making very risky bets in an extremely complex loan/mortgage buy/sell game. All of a sudden, the market tied up, cash quit flowing, loans defaulted, and they all found themselves with their hands in the cookie jar - way, waaaay over extended and with very little cash. Hence, here we are. Certainly some blame must be attached to their very poor risk management, however, the housing crisis is what lit the fire, and those policies are purely political in origin.