The immediate cause of the financial crisis is counterparty risk. The banks are all afraid to deal with each other because no one is sure which ones are solvent and which are about to topple over. The whole credit system is in danger of seizing up.
So the government's priorities should be
- Sorting out which banks are healthy and which are not
- Facilitating the orderly dissolution of the insolvent ones
- Getting the rules rolled back to 20% down, etc.
Once that's done, certain folks will take big hits. Some marginal people will be back to renting until they save up that 20%. A bunch of yuppie house flippers will go bankrupt, if they aren't already. That's how the cookie crumbles!
But it will soon be back to business as usual for most of us! And the stock market will recover, probably more vigorously than anyone expects.
I don't see the logic in committing a trillion dollars of tax payers' funds to bail out a small number of greedy people who took advantage of the politically correct Community Organizer's approach to real estate finance.
I remember in the safe loan days it was 10% down
20% was for self employed people who used their corporation(s) to legaly avoid (legally) taxation.