>>Which makes it trivial for the Fed to shrink the money supply It will be very hard politically. >>and they are still taking collateral for them. Real estat

>>Which makes it trivial for the Fed to shrink the money supply It will be very hard politically. >>and they are still taking collateral for them. Real estate that has collapsed in value >>The policy response is pretty good, especially when considered in light of how much worse this could easily have been How do you know? Supposed it collapsed: stocks, houses all dropped. Maybe that was the natural order of things. My thought on the supposed worse case scenario if there were no bailouts: #1 We have plenty of houses, commercial retail space, etc. So no one would have gone homeless. #2 The midwest is still the breadbasket to the world. We wouldn't go hungry. #3 Banks would have gotten a good lesson in respecting risk. In 5 years from now they'll be taking new risks that are just as stupid as the ones they took today because they know they will get bailed out.