It seems to me that there is a better way to spend $700 billion dollars on fixing the economic mess than the one chosen by the US government.
The problem actually is that the trouble on wall street is drying up business, and personal loan access. The local bank or credit union would love to lend us money but there is none to lend because of the present mess. Without access to credit people can not do business or buy property, (chattel and real). Businesses can’t upgrade, expand, or sometimes even get through a lag in the business year. The banking system must function in the aspect of keeping the machine of the worlds economy supplied with fuel (money).
Taking this as the premise the government has chosen to free up the money supply by paying off the bad debts of large banks to shock the system back into working. This time it’s supposed to work better than the last few tries. This time it’s much bigger… So the logic goes.
Perhaps a better way would be to use the money to back new loans only. Set up a trust or some such instrument, fund it, and make the money available to the Fed at the going interest rate. Using the existing mechanism but bypassing the troubled spot. Troubled because of it’s own foolishness.
Let the problems work themselves out in the free market. As the system behind the government’s loan program comes back online, the government can reduce and stop altogether, it’s intercession into the market. This way those that were conniving will be ferreted out by the free market and the companies that were weak will be devoured by the strong. The system would emerge stronger. Capitalism will take care of the problems.
The government’s way will only let the miscreants escape the light of day. Their misdeeds will largely go unpunished. Escaping justice to connive again. Oh there will be some ginning up of public outrage at the pay of some of these people, but the worst offenders will undoubtedly slip under the radar, with the cloak of crooked politicians guarding them.