What did Citi learn from its early-1990s near-death experience? Not enough, apparently

@ Curious Capitalist:

I apologize if I haven't been keeping completely current with the debate, but why doesn't the federal government give up on the banks, and start lending to people directly?

The banks would fail (which they will without insane amounts of money anyway) and the people in bad mortgages take a knock (but not too bad since when they get foreclosed on, they are no longer liable for the house). The greedy, thoughtless people who got us into this mess go broke. People who took mortgages they shouldn't have lose their houses (and credit scores). Those folks will just have to rent for a while (which they probably should have been doing in the first place).

The government hires some of the non-wizard type loan agents of all ranks, and starts up its own lending service which is eventually privatized, as things stabilize.

The credit market is unfrozen and we can tell the banks to go stick, which I thought is what we are going for.

As I have zero finance/business background, I must be missing something obvious or else someone smarter than I would have already proposed this.

But, without that training, I can't for the life of me work out what that is.

Can you save me $30-$50k on a finance degree and tell me?
(if you have a spare moment).

Thanks,
Brian the Engineer

zaphod --
the government doesn't have to loan money directly, the key is to insure the loans through agencies like the FHA and SBA. (If the government is co-signing your loan, who isn't going to give you money?)
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Those folks will just have to rent for a while (which they probably should have been doing in the first place).
I disagree with this. The problems wasn't home ownership, it was that people bought more expensive homes than they could afford, assuming that the 'worst case scenario' (i.e. unable to pay the mortgage) was selling the home at a profit. These people weren't evil (or most of them weren't), they were doing what all the "experts" were telling them to do.

@plukasiak:
OK, so the government guarantees the loans instead. If that frees up the credit market, why don't we just let the big banks fall?

I agree with your statement that the people who took out the loans are not evil and, for the most part, just took the bad financial advice they received at face value. I apologize if my original statement was not clear and led you to the conclusion that I felt the people who took out the loans were the problem. I don't think that these people should be ruined financially, and I don't think that they will if their house is foreclosed on. Yes, it will stink in the short term, but I guess I see that as inevitable (for all but the 5-10% who can actually afford the house they currently have, but just need to refi into a loan that isn't variable interest).

OK, so the government guarantees the loans instead. If that frees up the credit market, why don't we just let the big banks fall?
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I don't know, but I'd like to suggest one possibile factir --there is a limit to the capacity of the government to administer these large, failed institutions, and the people who have to run the things are already tied up with IndyMac, WaMu, etc. (not to mention Fannie & Freddie, AIG, Lehmann etc.)
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What bothers me most about the delay is that when the Fed does finally take over, all that will be left is a shell of the corporation, and its debts. Most of these banks/financial institutions have dozens of "subsidiaries") in tax havens -- for instance, Citigroup has 90 "subsidiaries" in the Cayman Islands alone (http://www.gao.gov/new.items/d09157.pdf page 25) -- and if I had my money invested in one of these "subsidiaries", I'd get it out pronto.