"Oh no - another bailout for those people I don't like! More money going to people I don't approve of! People who are rich | poor | indebted | conservative | usurers | union | not working hard enough | not green enough | retired | deluded | liberal | inefficient | too greedy | incompetent | not in my state | not me."
When times are good, it's easy to think that we're all separate individuals whose fates are merely intertwined by personal and business relationships. The fine print isn't so important, and people doing well want to claim the progress that they're making as their own.
When times are bad, though, it suddenly becomes painfully clear how tightly our destinies are connected not just to people we know, but to people we've never heard of, even the people we don't like.
Network effects are great when they build confidence and make it easier for people and businesses to get things done, but excruciating when the cycle runs in reverse. It's much easier to conclude that new relationships will be mutually beneficial when times are good; it's much easier to fear new relationships - and doubt old ones - when times are bad.
(Given that Web 2.0 business models are largely built on positive network effects, I also have a few worries about what reversing the cycle there might do.)
The indirect bonds that economic relationships create are often invisible when times are good. Direct relationships, like partnerships and employment, are obvious, but indirect relationships, like the impact of your neighbors' paying their mortgage on your own credit and employability, are not. On the way down, however, a plant closing across the country can knock mortgages out there which have an effect on the bank providing your employer with a line of credit, which can have a nasty affect on your own position.
I know the word "credit" may trip an avalanche of "neither a borrower nor a lender be" comments. Unfortunately, while being debt-free certainly makes it easier to survive economic downturns, it doesn't mean that you'll be unscathed. Even without opening a bank account, spending money you don't have, or selling goods for payments that aren't immediate, you're still vulnerable to the economic impact of credit shifts. Similarly, any savings you do have in the bank are protected not so much by the bank, as by all of us - governmental insurance. When times are tough, we're all suddenly stuck in the "we".
How can we get through this? We can start by recognizing that economies aren't the same as personal economy, and try to separate our calls for justice (or revenge) from the hard work of slowing the vicious cycle of network effects. We could, with former Secretary of the Treasury Andrew Mellon, chant "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He's not remembered very kindly for this, however - even Herbert Hoover chose not to follow that destructive path.
Bailouts are an awful thing, an admission of drastic failure. They're also a safety valve that can lessen the impact of disaster in a given area on the rest of the system. In the immediate and short term, we need to recognize that it's not just a given group whose boat is being bailed - we're bailing a very large boat that we're all riding.
In the longer term, yes, of course pursuing justice is necessary. A lot of the opposition to bailouts comes from the concern that "those people" will get away with it. In the short term, most of them do have to get away with it. Justice isn't as fast as a collapsing economy.
I hope that one of the few positive side effects of our current mess will be that it reveals our connections to each other, making the invisible hand visible even if it's also terrifying. Will we remember how this all looked when times are better? That's a harder question than the usual one of when things will get better.