It seems to have become common to say that the government has bailed out Wall Street, but not main street. Is that really true? I was thinking about this as I was looking at house prices. I was thinking about buying a few years ago, but I thought that prices were way too inflated. I was waiting for prices to reach their natural level. They have yet to do so. The problem is something like what businessmen and economists sometimes call "regulatory risk." House prices have declined, and millions of homes are in or near foreclosure, and yet, things would be far, far worse had the government not thrown billions and billions of dollars at the banks.
As a matter of scale, it's clearly very different to prop up the price of a $300,000 home than it is to keep big banks solvent. But in effect, it's the same thing. Countless people who used to work on Wall Street now can't find jobs there. The financial industry has shrunk. We see the big banks that survived, and forget that several large institutions are no longer around. The government clearly played a role in saving several of the banks that are still with us. But the same is true of millions of homes. Without those very same bailouts, home prices probably would have declined much further, and even more people would have lost their homes. (To be sure, home prices may fall further, but they have stabilized for now. The same is true for banks. More of the major banks might yet fail).
In short, we have met the enemy, and he is us. Just as the government saved several big banks, so too has it helped countless home-owners stay in their homes. Without the bailouts the decline of both would have been worse. Personally, I think that would not have been all bad, and I suspect the cost of bailing out American home-owners will be slow economic growth, and an expanded American state for years to come. But it's simply not true that the government bailed out banks but not home-owners.
P.S. I'm talking about TARP, and the other financial bills, for the most part. The stimulus bills of spring 2008 and winter 2009 are a different story. The former gave a tax cut to many Americans, and the latter did the same, plus sent money to states to save unionized, government jobs, plus other things.