"Policymakers insulated banks from losses using the argument that protecting Wall Street would also prevent large losses on Main Street. But the bailout alone wasn't enough to prevent big problems on Main Street, and it came to be viewed as largely a giveaway to the wealthy interests controlling financial institutions.
It didn't have to be that way. Instead of bailing out banks directly, we could have given money to homeowners to help them pay their mortgages. The money could have been earmarked for mortgage payments so that it still ended up in the hands of banks, but by allowing the help to pass through households first, the distribution of the benefits from the bailout would be much different: Both households and banks would have realized gains, and this would have been much more politically acceptable.
However, monetary policy authorities do not generally place much weight on the distributional consequences of the policies they enact. With fiscal policy, the distributional implications of tax and spending changes - whether they fall on the poor, the middle class, or the wealthy - are an important element of the politics surrounding these policies."
MARK THOMA is a macroeconomist and time-series econometrician at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models and models of transportation dynamics. Mark blogs daily at Economist's View http://economistsview.typepad.com/
to read Mark Thoma's article published in: The Fiscal Times, November 8, 2011, click on
link to www.thefiscaltimes.com