So a few days ago I was pointing out that the Federal Reserve was making $200 billion decisions without any kind of input from the electorate, and that these bailouts were going to help investment bankers and not homeowners.
This is strictly true. On the other hand, the problems that we're seeing in the marketplace have more to do with confidence than actual fundamentals. Or, to put it another way, people are scared. And scared people can do irrational and very damaging things unless they are calmed down.
An excellent article explaining the credit crisis by David Leonhardt explains the dilemma:
Many economists, on the right and the left, now argue that the only solution is for the federal government to step in and buy some of the unwanted debt, as the Fed began doing last weekend. This is called a bailout, and there is no doubt that giving a handout to Wall Street lenders or foolish home buyers — as opposed to, say, laid-off factory workers — is deeply distasteful. At this point, though, the alternative may be worse.
Bubbles lead to busts. Busts lead to panics. And panics can lead to long, deep economic downturns, which is why the Fed has been taking unprecedented actions to restore confidence.
If you're going to fail, fail in large groups.