We are choosing the latter.
But the credit bubble will still melt down. Subprime was just the beginning. Already we see soaring default rates in Prime ARMs. Any attempt at legislative remedy (such as moratoria on foreclosures or interest rate resets) will cause the credit markets to seize up. This doesn’t mean that the idiots in DC won’t try it anyway.
Yes, we are trying to pump credit into the markets, but as you point out, it won’t stop the bubble from deflating. And you are right, the politicians promises to help out borrowers (foolish ones or merely unfortunate ones), will only knock the securities down another 50% as the income streams become that much more unreliable and unpredictable.