To me, the greatest problem is the power we are investing the Treasury Department with. One central planner (granted, there is allegedly some congressional oversight in this scheme) has been given a huge amount of unprecedented power to purchase overvalued assets at overvalued prices. The taxpayer takes the loss. The philosophical, moral, and ethical assumptions are staggering, not to mention the disturbing precedent set.
We are told the market could not remedy the situation. This is hogwash. The market would gobble these assets up at their true prices. Yes, real estate prices would fall, which would affect home owners and realtors. Yes, interest rates would go up as credit tightens, which would affect loans of all varieties, and associated businesses. Yes, there would be people whose home equity lines of credit will give them an upside-down mortgage. Yes, there would be those who cannot afford their variable-rate mortgage payment and end up leaving their house for a less-expensive alternative. (But consider how much easier it would be for them to find housing if the prices decreased to represent the true market value, rather than an inflated price.)
There would be pain in the short-term in such a case. But if the government got out of the way, recovery would be swift. Within a year or two, things would hit bottom and start climbing up. Under an Obama administration, recovery, which should occur, will be slow and gradual. After four or eight years of Obamanomics, most Americans will still be feeling the crunch. Barack Obama and the statist status quo (McCain and the GOP included, of course) do not understand that central economic planning of all stripes and flavors (many will likely be experimented and tinkered with in the coming years) inevitably results in misallocation of resources, when compared to the market-based allocation, based on individual liberty and private property rights.
If the government was to do anything, far better to offer a tax deduction for those who contribute to the mortgage payment of those who cannot afford it. Give a very generous tax incentive in 2008/2009 for voluntarily contributing to help someone else make their mortgage payments. This could give many people several extra months to get things set before they would have to vacate. This would be far better than giving a huge amount of arbitrarily-administered authority to the Secretary of the Treasury and his unelected bureaucratic underlings. Though not perfect, this is far better than the unconstitutional bailout authorized by Congress last week, the many before, and the many which will occur.