Yesterday on NPR’s Diane Rehm show, one of the commentators made this point: (paraphrased)
The “bad debt” that all the banks are carrying, and that everyone talks about as the cause for this problem, is mortgage-backed securities. It’s bad because there are so many foreclosures, meaning that people aren’t paying back their loans. And that’s a problem because the banks turn out to have a much less solid investment than they thought.
Instead of spending $100 billion or more bailing out bank after bank, the government ought to spend that money to stabilize the real estate sector. Invest it in programs to help people stay in their homes and avoid foreclosure. This will help both the individuals, and simultaneously fix the problems with the banks, because the mortgage-backed securities will regain their value.
Sounds way too sensible to do, doesn’t it?
After all, we wouldn’t want to encourage risky behavior on the part of the common folk that don’t know better. No, we only want to encourage that with our large multi-national financial institutions that can wreck the entire economy.