The TARP is $700B targeted to shore up banks. Everyone understands that we need banks to be healthy in a modern economy. As John Kerry wrote in the Wall Street Journal: "We need to act swiftly and boldly to restore solvency to our financial sector".
Of course, they also feel the need to protect homeowners, so increasing their ability to prolong a foreclosure, if not outlaw foreclosures, is also being applied. This lowers the value of mortgages.
So, the asset at the center of this, mortgages, is pulling down bank balance sheet. Government's great solution is win-win: subsidize the mortgage owners, and also give breaks to those with mortgage liabilities! This is right up there with outlawing short selling in terms of directly addressing the problem.
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