Call it "a bailout in every pot": Having poured money into storied Wall Street institutions and major banks, the federal government is considering more aid for homeowners who are defaulting on their mortgages, along with billions in loans to help two U.S. automakers merge their troubled operations. There's also talk of another stimulus package of $150 billion or more.

The ever-expanding roster of rescues is a testament to how stubborn the problems in the U.S. economy are. Providing $30 billion to save Bear Stearns Cos. from default in March didn't prevent Lehman Bros. from going under six months later. Offering a bigger credit line to Fannie Mae and Freddie Mac in July didn't avert a complete government takeover in September. And so it has gone, on down the list of interventions.

The idea of helping homeowners in financial trouble isn't a popular one, to put it mildly. But it gets at the heart of the crisis in the financial markets, which is closely related to the problems in the larger economy. According to a new study by researchers at USC and UCLA, the slide in home values is likely to constrict spending by consumers significantly, making it harder for the economy to rebound. Such aid also is consistent with the principle of intervening when the market can't help itself. Despite the banking industry's voluntary efforts to help borrowers, statistics compiled by the industry show that the number of loan modifications only recently has caught up to the number of borrowers starting the foreclosure process. And in the last three months, the number of prime loans -- issued to less-risky borrowers -- going into default has surpassed the number of subprime ones going bad. Those are two good reasons to keep intervening.

The Los Angeles Times

(Nov. 3, 2008)