Why did the U.S. bail out the banks instead of the people owing the mortgage payments to the banks? Is it because it would have cost more money to bail out the people, or is it for some other political reasons? What are all of the reasons that made the government bail out the banks during the 2008 crisis.
(TLDR: because the Fed's intervention wasn't about fixing up the problems for who owes on the mortgage payments, but rather about avoiding a larger-scale systemic collapse of the banking system).
The intent was to avoid bank runs which is what happens when people largely lose confidence in a bank and many try to withdraw money at the same time.
Thing is, a bank does not take your deposits and lock it in a vault, which would just incur costs but yield not profit. Instead they turn around and loan it out to other people, with contractually agreed-upon loan periods that easily run in years. This is good for the bank and the economy, but it also means that there isn't enough money at hand to give everyone their deposit back at the same time.
Let's say a bank has $100 in deposits, it may only have $5 or so in liquid (easily-cashed in) assets (aka reserves) it can return deposits with. If that bank has lost $10 already (on its long term loans) and people are worried about it then it is easy for folk to overwhelm the $5 reserve and the bank going insolvent. (These are made-up numbers, but they express the general idea).
At which point a good proportion of $85 more of value can evaporate from everyone's pockets even though the original loss was quite limited at $10.
As per the wiki article on bank runs:
Banking panics began in the Upper-South in November 1930, one year after the stock market crash, triggered by the collapse of a string of banks in Tennessee and Kentucky, which brought down their correspondent networks. In December, New York City experienced massive bank runs that were contained to the many branches of a single bank. Philadelphia was hit a week later by bank runs that affected several banks, but were successfully contained by quick action by the leading city banks and the Federal Reserve Bank. Withdrawals became worse after financial conglomerates in New York and Los Angeles failed in prominently-covered scandals. Much of the US Depression's economic damage was caused directly by bank runs,3 though Canada had no bank runs during this same era due to different banking regulations.[
So there is a good reason to keep the bank afloat and it is cheaper to bolster up the bank around that lost $10 than to reimburse its creditors to the tune of $85.
Note that this is related to the FDIC, also in place to keep people from panic withdrawal for the same reason.
Also banks that are desperately hoarding cash to avoid insolvency are unable to loan money to new and healthier businesses and this can starve the wider economy of money, further inflicting pain.
However, what did not need to happen was bailed out banks giving their execs bonuses. That is a testament to the greediness of many actors in that sector and is a clear case of moral hazard. One could argue that many of the higher ups in those banks, those who approved a strategy based on risky loans, could usefully have been replaced with more competent personnel and employed more gainfully flipping burgers.
Because if the banks collapsed, then thousands of other viable businesses would have gone down with them
One of the key functions of a bank is to lend money to businesses to allow them to invest in things like equipment, training, staff, materials, and so on.
As an example, imagine a company that produces textbooks, and they have an order from a school for a thousand books, paid on delivery. The company still needs to buy the materials needed to produce the textbooks, and that money will usually come as a loan from their bank. If there is no bank to lend them money, then they cannot purchase the materials to make the textbooks, which means they can't deliver the textbooks to the school, which means they won't get paid by the school, which means they have to lay off all of their staff.
Now, on the subject of a "bail out": it's not like the government just gave the banks money with no strings attached. Rather, the government either loaned the money to some banks (which was repaid with interest), or they bought significant ownership stakes in others (on which they made a profit when those stakes were later sold).
"Bailing out" sounds like the US Government simply gave free money to the banks (or more broadly financial institutions including Fannie and Freddie).
In fact, "bailing out" largely meant the USG either lent to banks or bought toxic assets (that at the time no one else wanted to buy). (These toxic assets indirectly included mortgages, usually in the form of mortgage-backed securities.)
When all was said and done, the USG actually profited from all of this "bailing out". (ProPublica, estimates that as of 2022, the USG made a $109B profit.)
When you say "bail out ... the people owing the mortgage payments to the banks", you seem to be thinking of simply canceling these loans.
This could have been done, but only at huge cost, which is why it wasn't done.
Moreover, such a form of "bailing out" of housing borrowers would've been nothing like the "bailing out" of the banks that actually occurred.
Because it is not only easier to just bail out the banks they have more influence and are able to dictate what happens with less problems.
The problem with trying to bail out the loan holders is how do you go about doing it? Do you send money to them and have them pay off the loans? Do you send money to the banks and have them pay off the loans? If you send money to the banks how is it decided which loans are paid off and which are not?
While it would seem to be more fair to bail out the loan holders instead of the banks the problem is how do you go about it in a fair manner that isn't going to cost a lot of money and time to enact?
In the end it happens this way because of the overhead of trying to bail out many individuals instead of a single organization.