Government To the Rescue?

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Should the federal government disburse emergency aid to homeowners, home builders or lenders - or none of the above - in order to revive the economy, the financial markets and job opportunities for bankers?

Since the sub-prime collapse morphed into a sharp housing downturn and then a broad credit crunch, the Federal Reserve has injected hundreds of billions in credit to help loss-plagued banks and dealers stay afloat. Earlier this month, a research paper published by the San Francisco Fed found no evidence that the term lending facility the Fed introduced last December has reduced yield premiums for interbank lending.

Meanwhile, authorities running the gamut from leading bond investor Bill Gross to the head of the Federal Deposit Insurance Corporation are urging the government to commit taxpayer dollars to slow the pace of home foreclosures. Congress is poised to oblige: It's considering legislation that would inject up to $300 billion in FHA loan guarantees to cushion sagging home prices.

All this government intervention begs a number of questions: Is it fair? Is it wise? And most of all, can it succeed in helping the economy and banking system make it through a difficult period and come out intact?

Or, will seemingly well-intentioned attempts at damage control only end up prolonging the recession?

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