I wrote last week that the main reason the Wall Street bailout might be a necessary evil was to keep credit flowing. It's not the big guys who are most affected when there's a credit crunch. It's students who can't get college loans, buyers with good income and down payments in the bank who still can't get mortgages, and small businesses, who depend on short-term loans (often from one day to the next) to pay their suppliers and issue checks to their employees.
Since then, two things have happened. The Federal Reserve has stepped in for the banks. It's become the lender of last resort. When businesses need to take out short-term loans (or "issue commercial paper," in the jargon that business people use), the Fed will lend them the money directly.
The other thing is that the bailout has failed. The stock market continues to drop, the home mortgage crisis is threatening to become a worldwide recession, and more banks are running into trouble, including Citizens, which is huge where I live.
So I wonder: If all along, the Fed could intervene to help people continue to get loans, and if the bailout didn't calm the investors anyway, then why didn't the Fed just help with credit in the first place and let the banks suffer for their actions?
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