The financial crisis in America recently is , for me, a mirror for what had happened across South East Asia back in 1997. Before my eyes, I saw one by one those giant banks with decades of good reputations collapsed in a matter of days. Banks struggling to keep a good level of liquidation on their balance sheets, assure clients that they are fundemantally strong, and kind of refused to give any credits during that period.
A small drop of bad gossip around the city can cause a rush to branches of the bank and it enough to make them collapse in just the matter of hours to days.
I remember, Indonesia Central Bank tried to interfere the market - injected the money to money market and helped bank who struggled with their liquidation. But after couple of weeks, it caused our inflation soaring to...somewhere around 20 persen or more. It's just CHAOS! Everything all of sudden become very expensive, people had no enough food to eat. It's disaster!
Then came IMF as the good guy, or should I say the Savoir of Indonesia's economy. They decided to increase the CAR level of banks across the country to Basel Accords II level, those banks were so behind that most of them by that time still using the Basel Accords I as their CAR level benchmark. Not everybody was happy with this changes, but on the other hand government has no choice but to safe the illed economy, so then the big banking SAGA in Indonesia started. Most of small banks couldn't comply with this CAR level and they ended up declared themselves bankrupt or otherway is to liquidize themselves to the bigger buyer. In 3 years time, most of small banks got wiped out from the Indonesia banking map. There are only couple BIG players left, but they are healthier than before and more competitive too.
From the story above, I could say, what happens in USA right now (economically) just about the same with what had happened in Indonesia a decade ago.
The ill-economy situation is just like a cancer. You can't cure patients with cancer, you can only pro-long their lifes by giving different kinds of medicines, in this case the bailout aids or whatever they will call it. That $700 billions dollars won't safe America economy from disaster, it just keeps it from arriving a bit later. As long as banks don't stop to give credits to either unqualified individual or company, this problem will never be solved.
If today Bernanke asked me what US government should do to end this crisis...my answer will be, let the ill-company get into their own trouble, they should learn to take responsibility for whatever action they decided to take before. I know, it sounds cruel, but if you help one entity, then you shouldn't refuse to help the other one, just like how FED decided to help AIG but abandon Lehman Brother, it's just not fair. You may argue it has a wide spread effect of the economy, bla...bla...bla...but the point is...not fair is not fair, government should not refused Lehman Brother on day 1 and accept AIG on day 2. He should either help or reject both, besides both of them are world-size company, so I think we are really doing a lemon to lemon comparasion
Life in the economy is just like our cylce of life, one dies other comes out. One business bankrupt a new one will replace it.
Let economy goes along with the nature selection, Wall Street will ended up with healthier companies. Helping those ill-companies will not only drag down Wall Street to the deeper part of the black-hole, it will take along the Main Street and Penn Ave. together into bankrupty. When Penn Ave. files for chapter 11, who's going to bail them out????