It doesn't take a rocket scientist to see that addressing the liquidity problem on Wall Street by borrowing to restore the ability to lend does not address the underlying aggregate debt issue.
The common sense approach says that to avoid a sudden crash or some kind of long drawn out debt deflation, the American Government needs to address the ability of the real economy to earn, borrow and spend. And in this sense yes, much of the relief could have gone to debtors at large and not the creditors, who to pay their new debts will have to lend more...
But do we question the what if's? What would have happened if we let the economy shed all these junk assets at once. If we, so to speak, let the house of cards fall, does this freeze up the American economy as a whole? Businesses who would no longer have the property and assets on their balance sheets could no longer afford the working capital required to keep operating. Would we have expected lay offs, shut downs, and a decrease in GDP? Would the erosion of property values and assets on the balance sheet lead to a downward spiral of property values and assets in general, as businesses and tax payers flooded the market looking to off load and thereby increase liquidity?
We can agree that America needs to pay the piper...but can we see that America just ain't ready to do it?
Personally, I think the liquidity issue had to be addressed. I think the rate of exchange is crucial to keeping industry alive south of the border. And that, letting the free market work itself out is, in this case, much like letting a forest fire burn itself out...there's a lot of collateral damage. A sudden massive slow down of economic activity in our neighbor would inevitably affect our revenue streams and (through appreciation of our dollar) raise our operating costs. Canada would feel the affects of a seizure in US liquidity.
And so, though the American federal bailout failed to appoint public representation on the boards of directors of the financial institutions it rescued and did not seem to reprimand those leaders who led the over-lending (as they did in England;) and so the bandaid failed to address the ability of the real economy to consume but focused only on containing a contagion that goes far beyond simple "appetites for risk" and "asset price equilibriums..." at the end of the day the economy is still moving (albeit slowly,) and perhaps that movement will allow the time it takes to address the real issue.
And what is the real issue? Economists globally seem to agree the issue is an underlying debt problem or, "An (aggregate) debt above and beyond the ability of the economy at large to pay, and higher than the market price of property and assets pledged as collateral." Michael Hudson.
And so let us hope that, for the sake of the future of small business, intellectual capital (student debt), home owners, families and tax payers at large...we see the rest of the bailout fed to prop up America's aggregate debtors....because now Wall Street is in debt and the only way out is to sell more loans--the American people are going to need a little relief if they're going to be called upon to borrow more.