I think it's more than just who gets the bail out money.
Whether we like it or not, modern economic systems run on credit. That's partly why growth happens so consistently in the developed world -- if I have a great business idea, I don't have to save up ALL the money before starting it. I can gather some seed money, and borrow the rest to get the thing jump started. That's the whole idea behind a "business plan", which I understand entrepreneurs need to develop and present to the bank before getting their loan. In short, the bank is supposed to assess the likelihood of success before lending the money, to make sure the bankers have a good chance of getting their money back.
Which is how its supposed to work.
The reason the banks are getting support is simple. It's not that the fat cats get money, its that without access to credit, economic growth dries up. That means fewer business starts, less expansion of current business, and less opportunity for recovery. On top of the "whole economy" effects, Inadequate growth directly affects the regular guys up and down the street ---
1. A flat economy drives down wages. Our population is growing, so when new jobs dry up there's an increasing supply of workers relative to jobs -- and competition for jobs drives down wages. Supply and demand...
2. Flat economy means less demand for everything, which cuts jobs further. When times are tight, people buy less...and they get conservative even when they think times MIGHT get tight. When purchases go down, producers need fewer workers, and after layoffs the times get even tighter.
3. Since demand for stuff drops, the prices end up falling. Even companies that stay afloat end up seeing lower profits (fewer sales, and less profit per sale). Lower profits mean belt tightening for them, and belt tightening for them means job loss for us -- layoffs, etc.
4. More layoffs means more unemployment. More unemployment means less demand for goods and services, which means less production needed, which means more layoffs....
From what I've read, the government KNOWS it stinks to bail out the risk takers who created this mess. (Here I'm talking about the policy guys and economists, not the politicians who spend their days strutting like peanoodles on display.) But the alternative to the bailout could be -- for real -- a world wide depression, not just some recession. If not handled properly this mortgage crisis could lead to an honest to goodness economic meltdown. Bailing out individuals who borrowed too much doesnt have direct economic impact, so its money down the drain...but bailing out lenders keeps them solvent, which keeps other lenders from panicking and completely shutting down THEIR loans, which keeps the economy from sliding into disaster.
It's ugly, and its not "fair" but there may not be an alternative
