Yesterday I talked to an old libertarian banker friend. He dislikes the whole idea of a bailout, but reluctantly admits that the economy probably needs it in order to slow and contain the crisis. By his estimate, it would take the economy 20-30 years to sort itself out without the bailout. (Reasoning: it took us 3-4 years to get over the tech-bubble bursting, and those were goods that were only to last 3-4 years. In the present crisis, homes are durable goods, lasting 20-30 years. I'm not entirely sure I buy this argument, as it seems that houses resell better than computers, and people don't necessarily own a house for that long.)
Much more interestingly, he observes that some of the economic weakness originates in way that banks were ideologically forced to make loans to people with bad credit. Community groups (including the ACORN group with which Obama worked) sued banks for not making enough loans to racial minorities.1 The banks weren't singling out these people; it's just that minorities tend not to have as good credit (doesn't make them bad people). Since banks couldn't have special lower standards only for minorities, they had to lower their standards for all loans. Thus they were forced by "community" groups to make bad loans.
My friend estimates that these loans amount to about a tenth of the current economic crisis.
Of course people with bad credit who get a loan they can't handle end up much worse off when they default on the loan than if they had no loan in the first place. Ironically the real victims of this liberal strategy were these people they were ostensibly helping. This is similar to the students who get into a prestigious college, not because they are qualified, but simply because of institutionalized racial preferences. How does it help them when they have to drop out?
Once again we have an affirmative-action type of plan using heavy-handed tactics to ruin things for everyone, but especially for the people they were supposedly helping. For liberals, the motivation seems to be not so much actually helping people, but feeling like they are helping people.
1. Hopefully this doesn't sound like a white supremacist argument. Even a stopped clock is right twice a day, and unfortunately liberals seemed to be determined to make them right more often.
Update (Oct 2): More on the mortgage crisis and the Obama connection here.