[quote author="Anonymous" date=1234590209]Actually, in my initial example awgee objected to, they saved money. Also, what makes you think if the govt does nothing, it will be cheaper? Both Roubini & Geithner argue otherwise. And it makes sense. Govt income = taxrevenue and a messed up economy makes for a lot less revenue. And if the whole economy gets really messed up - ie. do nothing and let all the banks fail and unemployment shoot up to 25% like in the Great Depression, then the govt still has to fork out for unemployment insurance, welfare, food stamps, more police to control all the increased crime, covering all the bank depositors of the failed banks, medicare for people who get hurt or sick from living in their car or a tent, etc etc).
The intervention isn't just the humane thing to do - it's the smart thing to do as well, and will be cheaper in the end.</blockquote>
Try to follow this: Politicians are being told that there will be no end to this recession/depression until house prices bottom out, so their kneejerk reaction is to try to artificially put a floor under housing. What they aren't being told is that the reason a housing bottom will end the crisis is because the lousy MBS (and derivitives based on them) will stop losing value and the banks holding them will finally be able to stop writing losses against them. This specific politicial solution takes money out of the pockets of *those* people over there and gives it to *these* people over here who can't pay back loans that <strong>they never should have taken in the first place</strong> in the idiotic hope that this will somehow magically turn the housing market around and allow the MBS to suddenly become worth enough to make the banks solvent, and thereby saving the economy. The problem is that setting an artificial bottom by subsidizing underwater homeowners only prolongs the conditions that created the crisis, with no way to resolve them. Sure, it keeps people in their house but it also prevents them from leaving it, and prevents housing from being affordable again. Additionally, as long as the banks are able to hide their losses, they have no incentive to get off the government payroll, sucking even more tax dollars away from other, more beneficial, uses.
As for the cost of doing nothing... I'll wager that we could cover the cost of unemployment benfits, food stamps, welfare for children, FDIC payouts, Medicare, and extra police until the dust settles and the economy recovers for far less than we will pay for this program, the stimulus bill, and both halves of the TARP combined. We'd avoid becoming an economically retarded nation as well.
