Overall I agree with Ron Paul, and many but not all of his economic theories I tend to agree with. On some points I think he takes it a bit far (his theories are very safe and very conservative, but by being so safe, they sometimes limit opportunities for economic growth).
The fact that the government no longer tells how much money it prints is indeed a bad sign. The value of our currency depends on security, and that in turn depends on knowledge. Even if the government is playing straight, the fact that they're hiding their cards makes me suspicious, and more eager to invest in tangibles and overseas than I would otherwise. Hiding how much money they print allows them to print more (or less, but almost certainly more) than normal and delay the consequences enough that it primarily hits someone else, namely people like you and me.
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To be fair, I don't think most of them were expecting a government bailout when the made the loans.
It would appear Freddie Mac/Fannie Mae did. They took on more high-risk loans with the understanding they had government support (since many senators actively spoke out on behalf of those risky loans). While they aren't 'most banks', they do make up a surprising number of loans.
That said, I'll go ahead and give a few reasons why we do need this bailout (since everyone seems to be fighting on the other side), going from most straightforward to more distanced, as the ripples of economic meltdown are felt.
On the most basic level, many (perhaps even most?) people have significant amounts of money tied into the market right now. Most businesses have a 401k, Roth IRA or TSP account, all of which invest in the market in one form or another. Additionally, most people with kids have a 539 or similar college plan which invests in the market. The truth is, if I were to retire right now, I would not be able to live off of my retirement pay by a long shot, and most people are in a similar place. The economy moved away from a full pension back in the 80s, and now most companies only pony up a small portion, if any (which is a very mixed blessing). If the market crashes, a lot of boomers who were just on the cusp of retiring will not be able to do so, and a lot of people (like me) who are saving up for their own or their childrens' college education won't have the money for that. I don't think anyone wants to see their saved up retirement fund disappear, nor to see their children not be able to afford college, so this is pretty significant.
As banks close down, the FDIC will have to fill in the gap. The big problem here is, the FDIC is not especially fast. There was a minor crash a few years ago (I can look it up if people are interested) and the FDIC took two months to reimburse people, and offered no additional interest for the difference in time. Can you imagine surviving for two months with no paycheck? Most people can't.
People can't get loans for important things. College loans, house loans, car loans, etc. all dry up. Some of these people have been abusing for a while, but when it comes down to it, these loans are also very helpful. If I were getting ready to sell my house, or change jobs, I may need a loan to fix up the house beforehand or make the move. Without this liquidity, I can't do that, and I'm stuck in a bad situation.
Businesses also can't get loans required for growth. Right now most everything requires a loan. You can't start a new business out of pocket. If businesses can't get loans, they can't hire new people, they can't expand, and economic growth stalls. This is a critical point, since this is where we move from direct effects to less obvious effects.
Now things start to get more complex. A healthy economy is one where money moves quickly. Right now, each dollar you spend 'makes' approximately $11 more dollars before it stops. This all depends on people having cash available to spend above and beyond the necessities. If you can't afford more than rent and food, the cycle is a lot lower. So as people have less disposable income, it results in a cycle. They spend less, less moves around the economy, less gets back to them, they have less to spend, etc. There are problems relating to this 'speed of money', but we aren't focusing on those right now.
Most of us are in a position where we benefit from people having discretionary income to spend on more than just food and rent. Most of us also benefit from having a wide availability of luxury products, like TVs and ipods. On the contrary, when the money doesn't move as far, people aren't needed to produce these things and get laid off. Meanwhile, consumers have less selection to choose from and have to make do with lesser products.
One way of keeping this money moving is by 'making' money, either literally through printing presses, loans (enter the FDIC) or credit cards. Since the banking meltdown will significantly curtail two of these, we look forward to a significant increase in unemployment and falling luxury levels for a long period fo time until the market self-corrects.
Tycho is very right about the public and private debt. We've already been skating on thin ice for a while. If we had a 0 balance, $700B would be painful, but pretty safe. No one would question the US's ability to repay that. But we aren't, so it puts our currency in doubt, and threatens to overthrow it altogether. Similarly, most people are in a lot of debt, and so now that they actually NEED that money to pay their mortgage, they're in a tough spot.