The Federal Bailout/Stimulus

What if in 1637 European governments had decided that Tulip Bulbs really weren't overpriced and supported the market?

I don't believe there is any simple, painless answer to our current turmoils. My heart goes out to the unemployed as I wonder if I will be joining them as business contracts and my employer is rumored to be working on a 3rd round of layoffs for March. It is this fear of a layoff that is gripping the country and insuring that the economic malaise will continue. I still have my income yet I have cut spending and am putting off several major purchases including a new computer and a home. Why should I deplete my savings for a down payment when I could lose my income and not have an adequate safety cushion to fall back on? The stimulus package will not address this fear.

Assuming the stimulus is approved and money starts flowing just how fast will jobs be created and saved? Assuming they send the money out for construction projects and the projects have the material required to start and the idle construction firms bring back all that they laid off do you think the workers will spend their new income? I don't. They will be shell shocked and use the money to pay off existing bills providing no stimulus. Once caught up they will save to avoid a similar fate. Where is the stimulus?

The governments plan is nothing more then a decision that Tulip Bulbs are not overpriced and they should be propped up by the government. Over the course of generations policies and procedures were put in place to handle companies that went bankrupt. Banks have their own unique rules to protect depositors. The federal government has thrown these rules out the window with a claim of protecting the financial system. Wouldn't it be better to seize failing banks no matter the size, remove the questionable assets, recapitalize the remainder and sell the now healthy institution? For small banks selling to existing banks is fine, for larger banks the government could have an IPO. They could spread the IPO work out amongst many Wall Street firms and help them while creating the new healthy bank.

The questionable assets could be held by the government for as long as it is deemed wise. This may be until maturity or when market liquidity returns and prices appear reasonable, fire sales should be avoided to maximize the return to taxpayers.

One last note - living in Southern California, that $15,000 home purchase stimulus is pretty weak and I believe that would be true in other truly hard hit real estate markets. Average homes still sell for 300 to 500K in my area so their values could easily, and I suspect will, drop by well over 15K in the next 6 to 12 months.

We had a nice ride up the economic spiral, the slide back down is proving catastrophic.