Richard Posner has sage words about the bailout. He says that banks are suffering both from lack of capital and illiquidity. If they suffered only from lack of capital and the government bought the assets at market value, nothing would change, the supply of loans would not increase. If they suffered only from illiquidity the government could buy the assets at market value and hold them, the banks could make loans (you can't loan someone a collateralized debt obligation, but you can loan them cash) and the government would make its money back later. He says that the government should demand shares in banks it loans money to, because the alternative is a cash transfer from taxpayers to the bank's shareholders. While government ownership of private equity generally leads to political mismanagement and waste (a great example is Alitalia, as Becker points out), if it holds the shares briefly and sells them at the next opportunity there shouldn't be too much of a problem. He then goes on to outline what he thinks were the causes of the bailout, which are more private than any lack of government regulation. "There is a difference between creating and merely exacerbating a crisis," he writes. "Moreover, it is a paradox to exonerate the market on the ground that the government did not do enough to regulate it!" It's a complicated problem. But if our government is spending $2,333 per man, woman, and child on the problem, it deserves your attention. Uninformed analysis makes me think we can use $700 billion for much more noble purposes than grease the wheels of our banks. I'm also wondering why there's a market failure that requires government intervention. Usually if there is a shortage of lending, real interest rates will rise until people want to save money/lend it to others.

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