My own opinion feel that the government should intervent and bail out those in trouble especially financial company. I agreed the market makes periodic adjustments / corrections but this round it affect international financial institutes, which the magnitute are so much different from previous corrections.
The financial institutes are borrow and lend from each others, one major failure, ie Citigroup, would have exponential effect which would bring down the whole world financial system.
My feeling is that if Citigroup failed (example), the following might happen:-
1) Bank (healthy or unhealthy) will have liquidity problems cause by default loan to Citi.
2) Bank will not giving out interbank loan worry of defaults;
3) Depositors lost their money due to bank collapse;
4) All depositors of other bank will queuing to withdraw their deposits;
5) Redemption from insurance companies;
I believe the above will happen if Citi failed and government don't step in to provide liquidity to the market.
The above will not only happen in US but it will affect worldwide financial system. So I strongly believe US government intervention is essential to stabilise the world financial system.
