From Bob Gelfond via RCM:

Fannie, Freddie, the Community Reinvestment Act and other government policies subsidized and encouraged the growth of lending far beyond that which was financially sensible. Yet how is it that when the crisis deepens the solution is for more government even among those who should know better?

The reasoning goes that a strong negative feedback loop is in place causing markets to seize, and now the only solution is to use Public capital to stem the panic. I believe this view to be seriously mistaken. The only capital that the government can deploy is that which it takes from the private sector.

Unless we swap Amtrak or a National Park for these distressed assets, the government will be borrowing the necessary money from the private sector. Put simply, the government will be borrowing from the same pool of capital that currently does not want to buy these distressed assets.

That is absolutely correct; the government cannot conjure capital from thin air. Gelfond’s answer to the problem is much simpler:

To make it simple and quick, how about cutting all tax rates in half for at least the next 2 years? A sizeable tax cut like this would offer a tremendous boost to the economy, and it would make the transition to an economy with a smaller financial industry quicker and easier.

Income-tax reductions might put enough extra money in people’s pockets such that they’ll be less likely to lose their jobs, not to mention default on mortgage payments whose underlying securities presently ail the financial system. While there’s no doubt there would be additional pain in the near-term no matter the solution, a lower penalty on work would put us on surer footing sooner.

That seems like a much better idea to me. Rather than give the Treasury $700 billion, why not give it to taxpayers and let them decide how to spend it? They might even invest some of it in banks. Or they might even invest in a CD at a bank. Surely they would spend it more wisely than a politically appointee.