The issue is whether the way in which the cost is spread across society can be timed and slowed through direct intervention. That will remain to be seen, but I believe that as flawed as it is, the bailout package will nonetheless positively impact the way the damage is experienced.

Although there are political incentives for real estate purchase embedded here and there, including in the tax code, the culprit here, as in 1893, as in 1929, is less about government and more about unfettered greed and maljudgment. The problem is that when institutions are “too large to fail”, then intervention is required. It would be possible to create a financial system in which no institution was “too large to fail”, but it would require a re-configuration of the capital markets.

Perhaps the real lesson here is that lack of fiscal discipline by the federal government and the fed merely fueled a climate of “invest in the bubble”, which has almost brought our whole economy down. No matter how much government one favors, if a government uses state leverage (other than in wartime) to fund money for speculators, this is the inevitable result.