Bernanke and Paulson underwriting the USA

Wall Street Journal news about the ongoing subprime crisis talks about a prospective solution. Treasury Secretary Hank Paulson has proposed that the government purchase mortgage-backed securities in reverse auction. First estimates run at 700 billion, which is a larger amount of money than the Iraq War has cost so far.

Aside from my gut reaction that we are becoming dangerously socialist in our economic policies as of late, I believe this will help the situation. Banks and financial intermediaries that have mortgage-backed securities in inventory have been shoring up capital in anticipation of further declines in home and MBS values. This will relieve the liquidity crisis, as the government will become a "buyer of last resort."

Further, passage of this is a necessity. Not because many banks could go bankrupt, that is a foregone conclusion. An unmanaged collapse in the financial markets would erode investor confidence an astounding amount. The United States has historically been a destination for the world's investment funds for decades, but that wouldn't last for long if we crashed. We have already slated this crisis to last at least 5 years, but if this is not done, we would be in for at least 10-20.