Government Bailouts

The current crisis has sent most to the history books, and I am no different.  I have been reading about Margret Thatcher's response to the petition from 364 economists in 1979 when they objected to her reduction of government debt, about Reddy's, India's finance minister, response to the credit bubble in the past decade (very unpopular until recently), Japan's lost decade (in the 90s), Sweden's solution (in the 90s), our response to the S&L and foreign government bond crises (mi9d-80s), our response to the panic of 1907 and the collapse of LTCM (late 90s) and our depression in the 30s (did the New Deal work?).  As everyone who reads the financial papers know, opinions on historical crises, like those on the current crises, are all over the map.  A few of my personal conclusions:  1) If government gets it must get in big--there is no half-way solution that works; 2) If government gets in big it may work and may not depending, often on the views of one person (Reddy was smart; Japan's Finance Minister was not) which is a high risk alternative; 3) When government gets in big it bets the house; and 4) the predominate government error is a failure to focus on market trust by private players -- things turn around only when the private players in the market can trust banks and operating companies.  If the government acts to instill trust (Sweden; India; UK), things work; if the government inhibits trust (Japan) things stagnate.  Our government's current response is to hinder trust -- the markets do not know the market value of toxic assets, cannot predict government policy, and cannot predict the effect of workouts by struggling companies.  We are acting more like Japan than the UK.