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| Be careful on drinking too much of the 'government is the only answer' kool aid. Letting the free market work is saying lets trust the people to run the economy. This works really well every time it's tried. What happened in the 30's is that instead of letting businesses fail and get it over with, FDR tried to patch things up here and there and continued the misery way too long. To me what happens is that instead of heads rolling for bad business decisions they get bailed out and just keep going. Down turns are supposed to cleanse management ranks and we need that more than ever.
The mistake is assuming that businesses like large banks and car companies being allowed to fail will not generate a frenzy to buy up what's left. Consider that GM may have faced some reduced demand in the wake of the housing mess, but they had been selling extremely, extremely profitable SUV's for plenty of time to be flush with cash. You can suggest union worker costs and foreign competition, but the bottom line is management and apparently Ford didn't appear to have nearly the same problems in the same environment (and don't get me started on Chryco). Anyway, what was left of GM would have been bought up in a second. Plants may have been down for maybe a week if that.
Large banks are no different. If a hillbilly pig farmer in ECIL (where there are no hills) can catch on that the housing deal from the government's 'everyone should own a home' to way wacky lending rules was not going to end well, I'm guessing a Harvard MBA banker probably saw it coming much earlier. Yet, no manager tried to unwind themselves from the mess and 'party on!' was the management position. In a normal economy the penalty for bad management is dismissal and possibly not finding living accommodations any better than a van down by the river. New blood applies for management positions and works hard not to repeat the mistakes of the past. It's almost like top management has a stronger union than the uaw (or worse yet seiu). The reason for that is gov't bailouts.
No, as messy as the free market may seem to be, government intervention is much much worse. Quick comparison - tech stock bubble vs. housing bubble. Gov't not really into new tech companies, lots of folks taken up in the latest fad of 2 guys in a room with a PC doing IPO's representing almost nothing, result is a bubble then a pop. Folks that were gambling lost money and what was left was real business (MS, Apple) and new comers to the industry understood they had to have a real product and a business plan to make money or they go away. Big contrast to the housing bubble where, with gov't 'encouragement', bankers chased down folks with no job and got them to buy houses (extreme example, but not uncommon and generally represents the drive behind the bubble).
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Peter Schiff and Doug Casey on money printing
