And you thought capitalism was corrupt! Combine it with government largesse and voila! Corruption cubed! So the Federal Government first influences (some say forces) large banks to make more risky loans, then when the borrowers can't make their payments and the banking infrastructure begins to crumble under the weight, the government cries foul, demonizes the banks, and then bails them out with public funds effectively taking them over. Having escaped the natural consequences of their poor lending practices, the banks (with government oversight) use the TARP funds to shore up their balance sheets while tightening credit--who can blame them? Then they use their revived financial strength to pay their people more for their "pains." Everyone will blame them for that--justified or no. Finally, the government then demonizes them again for the sin of solidifying their structure in order to justify taking wholesale control or implementing suffocating regulations.
If market forces had been allowed to prevail, the banks never would have lowered their credit standards to begin with. Remember, government (public) "insurance" for higher risk loans coaxed lenders into those trecherous waters. Homebuyers would have had to have large/er down payments, better credit, and better ability to pay keeping high-risk loans out of the market. Banks would have seen fewer defaults and more solid balance sheets and profits. Yeah, fewer folks would have gotten into homes but they wouldn't be losing them now, either. And in the end, the economy would not have needed the "correction" it has now taken.
Sorry, it's NEVER rational to involve the government and "free money" into ANY industry. Regulation should be limited to protect consumers from criminal fraud, theft, and bodily injury (not risk) and government prop-ups should be outlawed. Ever. PERIOD. Businesses and industries who attempt to operate outside the laws of sound economics driven by demand, supply, competition, and value should fail.
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