Have you ever made a trade that immediately went against you, and before you knew it, you were 10% or more down? Wouldn't it be nice if the government gave you your losses back, on the basis that if you lost your money, it would threaten the financial system? Sounds pretty dumb, but that is exactly what they are trying to do now. Bear Stearns was bailed out, despite the fact that it was a violation of the Federal Reserve act, because Bernanke, backed by Paulson, believed that it would put the U.S. financial system in jeopardy. That should read "it would put Bernanke's and Paulson's reputations in jeopardy", or worse, "it would put the Republican party's chances of winning the election in jeopardy".
By the time this is all over, I expect that several big banks will recieve bailouts, as well as most major homebuilders. The taxpayers are going to get stuck with the bill. And the upside down homeowner is going to end up on the street.
Kudlow says he believes in free market capitalism. It's now time for him to back up his words. Larry, you need to get Congress to stop these bailouts immediately, allow the banks that issued these bad loans to go bust, allow the market to drop to a reasonable level, and restore the natural business cycle.