I haven't been able to devote much thought to the bailout yet, so let me turn the microphone over to others. Tyler Cowen explains why the bailout is needed:
What if we didn't bail out the creditors?, by Tyler Cowen: ...[L]et's say that the Treasury did not support the debt of the mortgage agencies. The Chinese bought over $300 billion of that stuff and they were told that it is essentially riskless. The flow of capital from them and from other central banks, sovereign wealth funds, and plain old ordinary investors would shut down very quickly. The dollar would fall say 30-40 percent in a week, there would be payments system gridlock, margin calls at the clearinghouses would go unmet, and only a trading shutdown would stop the Dow from shedding half its value. Most of the U.S. banking system would be insolvent. Emergency Fed/Treasury action would recapitalize the FDIC but we would lose an independent central bank and setting the money supply would be a crapshoot. The rate of unemployment would climb into double digits and stay there. Many Americans would not have access to their savings. The future supply of foreign investment would be noticeably lower. The Federal government would lose its AAA rating and we would pay much more in borrowing costs. The deficit would skyrocket.
And I haven't even mentioned the credit default swaps market. Well, I have now.
But for another point of view, try Jeff Rogers Hummel.
Can't have that, hence the bailout. Tyler also plays traffic cop:
World's biggest bail-out: update, by Tyler Cowen: Arnold Kling wonders: what is the exit plan? Brad DeLong and John Hempton think the Bush Administration showed some courage. Brad thinks the preferred stock can do OK. Here's what forced Paulson's hand. All lobbying from the agencies has been eliminated. WSJ reports: "House Financial Services Committee Chairman Barney Frank (D., Mass.) said in an interview that the near-term effects of the conservatorship will be to "strengthen the public mission of what they do" to prop up the housing market." Preferred shareholders lose dividends. CalculatedRisk has the clearest bottom line so far.
Let me add two from Robert Reich, Fannie and Freddie, as Predicted, and Fannie and Freddie, and Why the Accounting Gimmicks. In addition, Felix Salmon has Frannie's Future. I'll add more as I find them. [John Jansen at Across the Curve has a stream of entries on the bailout, the latest is here. Here's Andrew Samwick.]
Is it a good bailout, or a bad bailout (relatively, not absolutely)? My own view is that the bailout was unavoidable, but I'm waiting to learn more details before judging the quality of the intervention (both with respect to the current situation, with respect to moral hazard concerns going forward). Nouriel Roubini, though, has heard all the details he needs and writes about Fannie and Freddie’s Bust and Deeply Flawed Government Bailout.