This week's--and this year's--history making government intervention in the financial markets has stirred heated debate whether it puts the economy and the markets on the road to recovery or on the road to ruin.

Federal Reserve Board and U.S. Treasury Department involvement in the sale or salvation of Bear Stearns, Fannie Mae, Freddie Mac and American International Group could cost nearly $315 billion. And that doesn't include Thursday's news that the Fed would pony up as much as $180 billion to help lubricate global credit markets, or the plan being hatched by the Bush Administration to rescue banks from bad debt.

Call it the "Paulson Doctrine," at least that's what Roger Ehrenberg calls it. Ehrenberg, a former Wall Street hedge fund manager and investment banker who now runs his own investment vehicle called IA Capital Partners, wrote on his website blog ( that Treasury Secretary Henry Paulson has the power of life and death over companies he deems too big to fail or not worthy of government--and thus, taxpayer--intervention. (Sorry, Lehman Brothers.)

 Never mind that it was the Fed who rescued AIG, Ehrenberg says, it was Paulson who likely engineered the deal. Ehrenberg acknowledges that the recent spate of government intervention has helped the markets in the short run, but that it comes at a price of delaying the pain of badly needed structural changes required to fix an out-of-whack financial system.

"He (Paulson) is reacting just like a hedge fund manager whose illiquid asset portfolio is blowing up in his face," Ehrenberg writes.

Others are downright apoplectic about the government's recent interventions.

"As an investor I'm making money off of what's happening," says Peter Schiff, president of Euro Pacific Capital in Darien, Conn. "But as an American I strongly disapprove of it. They should let them fail, and I'm not just talking about the shareholders. I'm also talking about creditors. Why should people who loaned money to AIG or people who bought insurance policies from them get bailed out?"

Schiff says that creditors and the public need to do their homework on the financial health of the parties they deal with, and that it's not the government's role to get them off the hook if things turn sour. "Risk isn't taken away, it's just socialized," he says. "You can't have a market economy where the government takes away risk and there are no checks and balances."

Schiff says people should use the court system to redress their grievances rather than rely on the government. The more government gets involved, he opines, the more it screws up things. He argues that the government essentially created the current housing mess by establishing Fannie Mae and Freddie Mac in the first place, moves that subsidized home ownership, created a safety net for mortgage lending, and ultimately distorted the marketplace by enabling too many people to buy homes they couldn't afford.

"Would it be a big disaster to let these entities fail?" Schiff asks. "Yes, but when does it end? You have to bite the bullet at some point. I'm afraid we're on the road to complete destruction of our currency, and that U.S. Treasuries will fall through the floor."

Schiff says he's making money for clients by going long in gold and foreign currencies such as the yen, euro and the Swiss franc, while shorting financials. "It's not a situation I want to be in," he says, "but it's what I have to do."

Speaking Wednesday on CNBC, former Federal Reserve governor Wayne Angell said he doesn't believe the nation's finances are imperiled by the government's recent largesse toward failed financial companies. "It's not the public's balance sheet that's at risk," he said. "It's the Fed's balance sheet we need to focus on, and the Fed's balance sheet is infinite."

Angell noted the nation's monetary base "barely budged" when it rose 2% on a September-to-September basis. "That's not inflationary," he said.

Not everyone is as insouciant as Angell about the government's finances, but some think that Washington had no choice but to take action during the current crisis. "Either we go into a Depression and suffer a complete financial collapse, or we do everything we can to try to prevent that from happening," says Jim Welsh, founder of Welsh Money Management in Carlsbad, Calif. "And it still may happen despite all of their efforts."

Welsh says that while he's no fan of bureaucratic meddling, he's increasingly frustrated by the "moral hazard" argument used by some people to criticize government intervention. This, he says, coming after unabashed free marketeers cheered as mortgage companies, Wall Street firms and credit rating agencies did their thing and created a situation where lending standards loosened to dangerous levels.

"When you get to the point of basically lending to anyone with a pulse, that to me is a moral hazard," Welsh says.