Matt Yglesias has a post asking whether the government will make a profit out of all this. I'm much more skeptical than he is, but it's worth adding one bit to his analysis. You keep hearing people say that we're in a "liquidity crisis." That's different than what people think we're in, which is an asset crisis. There are a lot of overvalued assets, yes, but the basic problem is that regulations on how much cash banks need to keep on hand have been loosened. Meanwhile, the panic around the overvalued assets is pushing people to take their money out of the market. But the banks don't have enough cash on hand to give people their money bank. Thus, collapse. Meanwhile, old-style banks like Bank of America whose leverage is limited to around 10-to-one (they can only have ten bucks of debt for every dollar on-hand) are riding this out pretty well. In crises like this, the assets tend to look even more worthless than they are. The smart play would be to simply endure the panic, refuse to sell during the hysteria, and then make rather more money by selling when the chaos ends and the prices drift upwards towards a more natural level. But because these banks don't have sufficient liquidity, they can't do that. The government, by contrast, can. So they're going to buy these assets at very low prices and, in time, sell them off at slightly higher prices. This may mean they make some money. But whether that will be enough money to offset all the cash they'll have to pump into the market to ensure solvency remains to be seen.
