But I would like to correct some of the worst of the commentary I've seen around various blogs and columns:
1) The Fed pumping liquidity into the system is not a bailout. The Fed is supposed to ensure liquidity.
2) JP Morgan's purchase of Bear Stearns at fire sale prices is not a government bailout. It is good business and furthermore served to restore confidence. Have a look at JP Morgan's stock price after the deal was announced if you don't believe me.
3) Lehman Brothers, Citigroup, and other major firms are not next in line to collapse. Bear Stearn's problems go back to the collapse of their hedge funds earlier this year, and the signs of capital adequacy problems have been going on throughout the year. I have the benefit of the earnings results from Lehmans, Goldman Sachs, and Morgan Stanley. . .but it seems the worst is behind us. Indeed Cramer (of Mad Money fame) is even suggesting markets have hit bottom.
4) Capitalism works - the JP Morgan buyout is proof of this, not evidence to the contrary.
If anything, there isn't enough capitalism. This analysis from Cato and this Bloomberg commentary identify the true culprit in the sub-prime mess: Land use regulation that distorts the true supply/demand pricing in several states. The states most affected are Hawaii, California, Florida, Maryland, Oregon, Washington, and most of New England. It is probably not a coincidence that those states are where the biggest sub-prime default problems lie. Couple this with regulations requiring bankers to extend more loans to "disadvantaged" areas, and you get further market distortion.
As usual, the right answer is more capitalism and less regulation. Not the other way around.
Now if we could just reduce taxes (how about starting with the AMT) homeowners and even subprime borrowers might even have a bit more cash at hand to keep up on their mortgage payments.
And what is the definition of having cash on hand available for payments? Liquidity!
