I posted a link elsewhere that was a great explanation (IMO) of the underlying problem. Basically all of the complex financial instruments have created a distrust of any type of "paper". This is compounded by monetary policy that created unrealistic values in many area's. The average value of a house here in the US is one, but we can look at another as well. For a few years now auto makers promoted "zero interest" loans and very favorable leases that flooded the market with cars that had overly high retail pricing (and residual lease values) but relatively low month to month costs...even made worse with "we take any trade". So some folks ratcheted up to a car or even a 3rd one while carrying paper from the earlier vehicle. Now the dealer has 1 or two used cars that wont move and a car that has no value while the guy making the payment is buried and paying on a car he cant get out of.
So yes, we have a lot of assets of all kinds that are overvalued, but also a misguided sense of expectations. We're not entitled to a smooth and bump free ride all the time, yet it appears we've lost perspective. Banks above everyone else. So while before banks took prudent risks and demanded reasonable returns over time recently they all wanted to be big players and "investment banks". So the "WAMU's" of the world ended up on the working end of a chainsaw and IMO pushed a lot of bad options to homeowners by making "bad loans" attractive and good loans overly expensive or impossible to qualify for (this applies in a lot of area's).
The real problem we have is a ton of "bad paper" that will eat up cash reserves at any bank with "poison paper" as well as a lot of municipalities and companies who have assets at risk. The real risk is that the "bail out" will simply make some entities who caused the problem reasonably whole while making the institution who bought the paper insolvent.
As an example, you go buy a used car and its a lemon. It turns out that millions of people bought lemons that don't work at all and people can't get to work. So the government steps in to rescue things. After careful consideration they determine that millions of Americans owe billions of dollars on cars that don't work, so they aren't making the payments. This is an economic crisis, so they decide to spend billions to buy up the bad notes so car makers can afford to loan you money for a car that works
It doesn't matter that you spent your DP money on the clunker on the driveway or that the car auto maker now wants to sell you the same refurbished clunker (hey its what we've got).
So...
The end result is the people who created the problem have cash back and the people who got hosed now have a lemon in the driveway and a larger debt to pay taxes on and no good answer on how to get a car that works.
Don't know if that makes sense or not to all of you, but IMO what "we" did was create a scenario where the disconnect between the man in the street (or literally on it for some) and the various governments is so complete that as we continue to melt down a total lack of faith will occur. Basically the government is ignoring "us" and sold out to the special interest groups. I'm not saying that the bail out was wrong or not needed....but its going to the wrong people. The 1st thing AIG did was go play golf.
Now if you took the "stalin" approach by 1st arresting the CEO and board of directors and then giving the firm money with the clear understanding that if they don't turn it around in 90 days you'll be back to arrest them to.
Where this went south is when we didn't arrest the heads of Bear Sterns...so now this is a global good old boys club and the global middle class is going to get absolutely crushed...and I mean dead flat stomped on.
