He had two options:
A) Nationalize the financial industry and have the taxpayer and Treasury cover what they estimate to be $1 trillion in bad assets (it will be more than that). This "fixes" the problem for a very short time, destroys the worth of the dollar in terms of buying power (it will still look OK next to foreign currencies since they are in the same boat), causes real inflation to skyrocket, and gives the largest debtor nation on the planet (us) an immense amount of extra debt.
B)Let the chips fall where they needed to so that our nation might have some chance at economic recovery. This would involve massive unemployment, many people losing their homes, savings, retirement income, etc.
As hard as it sounds, we needed option B. Option A does not actually solve anything, and it will just get worse.
True, buying a $100,000.00 house for $400,000.00 is not smart.
Option B would have given us President Hussein a Congress with a 2/3 Dem Majority to remake America in ways you do not want to imagine.
Actually, it sounds like he is taking option C: take all the bad paper off of the scoundrels who got us into this mess so that they are free to do it again.
Any politician and any employee of a politician, which Paulson is, cannot allow option A to happen. If only to save his own skin. You have to be seen to be doing _something_. Nothing was what the Fed tried during the Great Depression.
Will it only delay the inevitable? Probably. But perhaps the landing can be cushioned somehow. I have no idea how, but it is certainly worth trying.
You’re absolutely right. The Fed is blowing a trillion dollars of paper “money” into circulation, but where is the corresponding trillion dollars’ worth of real-world value? Did we capture an asteroid made out of rhodium or something?
I’m with you. Re-inflating the bubble with worthless “money” only delays the inevitable. We need to reconcile ourselves to reality and let the chips fall where they may.