Government Made the Mess

As for the stock market crash fear, it crashed in 1974 and 1987, and there was not any Great Depression afterward in either case. As for credit markets, they're already frozen exactly because of the actions promoted by Paulson and Bernanke for the last year. Their inconsistent and often unexplained meddling with the markets has created a hostile business environment. In this highly uncertain environment caused by government meddling, market players are understandably afraid to do anything.

Here are just a few examples of unexplained and inconsistent government actions in the past year. Why did Bernanke and Paulson save Bear Stearns and commit public funds but allow Lehman to die in bankruptcy with no help at all? Why did Paulson nationalize Fannie(FNM Quote) and Freddie(FRE Quote) and wipe out their shareholders but then allow AIG(AIG Quote) investors to keep some equity and stay privately owned and publicly traded?

Why did the bailout or rescue, depending on your point of view, only come up when it looked as though Goldman Sachs(GS Quote), Paulson's former employer, was going to fail? Why did the government orchestrate the forced shut down of Washington Mutual (WM Quote) and Wachovia(WB Quote), yet many other banks with similar problems such as Citigroup(C Quote), Corus(CORS Quote), Downey(DSL Quote) and National City(NCC Quote), have been spared or even protected? None of this has ever really been explained. When pressed, they go back to stock phrases, referring to "systemic risk" that really mean one thing: "We are smarter than you, and you have to just trust us."

Bankers and politicians say that the government needs to save the $62 trillion credit default swap market from collapse, but how can $700 billion fix a broken market that is nearly 90 times the size of that amount of money? The total derivatives market, which is the real source of the turmoil in credit markets, is $1,400 trillion.