But will these numerous federal bailouts of the hedge funds and large banks "trickle down" to help the average American facing the loss of a home? Unfortunately, the answer is that bailouts of the banks will not help homeowners, and will even contribute to even more hardships. The government has nothing and produces nothing, so any bailout money it hands out to the nation's banks must be taken from some other source; namely, the taxpayers and homeowners themselves.
So, by stealing money (through borrowing or inflation) to pay off the banks and keep them in business, the government will just be rewarding the poor lending decisions these banks made for so long. Of course, this creates moral hazard for the lenders to keep making bad loans, trusting in the government to bail them out next time. This has happened over and over again, the Asian Crisis to the collapse of the Argentine economy being just two more recent examples. Furthermore, it was the easy credit and federal bailouts that created the housing bubble and led it to become as massive as it did. Just pouring more inflation and credit into the system to bail out the banks will not solve the problems. A trickle down? More like a mass concentration of wealth upwards.
Also, inflating the money supply will just drive up prices for other goods in the economy that are vital to the average person. Homeowners already struggling to feed their children, heat their homes, and keep their cars full of gas will not be able to keep up if food and energy prices keep increasing, as they certainly will if the money supply keeps increasing to keep the economy going. Stealing money from these people through federal government bailouts of the banking system will only push them closer to their own foreclosures, which will necessitate more government intervention, which will lead to more financial collapse.
A bailout of the banks might, in the best case scenario, keep them in business for a little longer, but the bailout will create the conditions that lead to the next waves of foreclosures. Even with a bailout, many of the large banks most exposed to the subprime lending mess are nearly insolvent. Pumping liquidity into the system can solve short-term problems, but the banks simply have no reserves left. In fact, they have already lost much more than they ever held, making many of them essentially bankrupt. But the only solution offered by government is just to keep stealing the purchasing power away from average people and expect them to be able to keep their heads above water and continue consuming.
The only other solution presented, the voluntary government programs, offers nothing new that homeowners and banks could not work out on their own. Essentially, with all of the voluntary programs that the government has already come up with to "solve" the foreclosure crisis, they have told homeowners "tough luck." Banks get direct injections of billions of dollars taken out of the pockets of average Americans, and the Fed offers to take the lenders' defaulted subprime mortgage securities as collateral for new loans, the money of which was stolen from the very homeowners struggling to keep their payments current. Homeowners get voluntary programs that are offered by only a handful lenders who are not required to do anything to help.
The bailouts that have been and are being provided to the insolvent banks and hedge funds are doing exactly what they were meant to do: allow the banks and financial centers of power to keep up appearances while they cash out of the system, leaving the average American out in the cold but (hopefully) unaware of it all. The government programs are a part of the ruse, of course, to show how much politicians care about homeowners in foreclosure, while quietly pushing them even further toward the brink of losing their homes.