According to Paulson and Bernanke, the critical problem is that banks are not willing to lend money. Without being able to borrow money, business will grind to a halt, jobs will be lost, and a depression will occur. To avoid this, Paulson proposes to put the banks in a position where they are willing to lend by buying up the bank’s bad investments at above market prices.

Paulson’s proposal raises a moral problem for most Americans: rewarding those who caused the problem. His proposal also raises a free market problem: eliminating the penalties of failure.

As an alternative, why not have the Treasury become a lender to any qualified individual or company?

This eliminates the critical problem of a credit freeze without raising the moral and free market problems. Let the banks that have failed fail. Let the banks that have succeeded succeed. When the crisis is over, the Treasury can stop lending money and sell off their loan assets to the successful banks.

This is a simple, easy to understand intervention. It is more equitable and more consistent with free market principles than Paulson’s proposal. It may be too simple – I am not an economist – but if the critical issue is credit, it would seem to do the job.

And generally gets much better rates than anyone else does, too.

The usual places the U.S. borrows money — the Fed and foreign sources.

http://en.wikipedia.org/wiki/United_States_public_debt

The U.S.  gov’t can of course borrow FAR more than any private individual or entity — and does.

Nope. It’s a South Park reference.

Maybe you’re right — it is a hell of a lot of money. But if there really isn’t that much money available on the bond market, then where is the Treasury planning to borrow the money for the Paulson plan?

As a free marketer, I still think it would be better in the long run to let these companies fail and be replaced by more efficient competitors, but this isn’t as bad as some are making it out to be.

I agree with your overall point, but I don’t think you understand how much $700B is in relation to the financial markets.   No one is going to be able to put together a bond offering that large.

To put that number in perspective, the largest US company is worth about half that.

Well, I took his statement to be more of the "I’d love it if I could fly by flapping my arms" sort of statement than a statement of practical desire; he’s saying that the US government is (with their ability to get large amounts of money much more cheaply than private citizens can) in a position to do what, were he able to, he would do and make a fortune at. Not being the US government, he’s not in that position, and I don’t think that he’s advocating that anyone artificially put him in that position. More of a "if I had your opportunities, I could do great things, so it’s a great opportunity for you"

That is not always the case.  For example, someone who did indeed get a loan they could afford, but had to relocate can find themselves unable to sell their house for as much as they owe on it do to real estate devaluations and the difficulty prospective buyers have in getting loans in the current environment (further driving down rates.)  Helping people (even people who probably should have never gotten a loan in the first place) pay their mortgage would lessen the need to sell, increase the valuation of property and give banks more ability to make new loans, all of which could help out a lot. 

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