One benefit of flying long distances and vacationing in your in-laws' house is that you get plenty of time for reading.  So that's what I've been doing, today focusing for the main part on articles about the Bush Bail-out Plan for Wall Street.

I'd been studiously avoiding commentary until I had a better handle on what was being proposed, what Congress was doing with the proposal and what the long-term implications of such a large intervention might be.

I must disclose that my reading has only partially answered the first and second questions...and not provided much illumination at all about the last.  Lacking a degree in economics or a long-term professional background in finance, I'm not capable of providing an expert opinion.  But I am capable of providing a reasonably well-informed opinion (which is all I ever claim to do anyway).  So here goes.

My instinct, after watching last week's gut-twisting, roller coaster ride on Wall Street, is that Treasury Secretary Paulson's plan to prevent wide-spread financial sector failures with a buy-out of bad debt is exactly the right bitter medicine to stabilize a seriously ill economy.

Some on the left (and on the far right) have characterized the plan as a bail-out of Wall Street at the expense of Main Street.  They question why everyone should pay to stabilize (and redeem) greedy companies that got themselves into this mess.

It's a rare thing for me to agree with Bush, but a quote from his speech yesterday summarizes my gut reaction:  "With the situation becoming more precarious by the day, I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all."  (As a minor aside, I think his speech writer would have made a better choice if the government action was described as "drastic" rather than "dramatic," but that's another topic.)

Simply put, we need intervention or the whole financial sector would impolde a-la the Depression.  It's a storm we could weather in the long term.  But the short term would be brutish indeed.  And while it may be that a deep recession or depression would have a deeper psychological impact on our American addiction to easy credit and religious fervor for consumerism, I find it more palatable to consider an intervention and rehab than a cold-turkey withdrawal.

There's also an underlying fallacy to the Wall Street versus Main Street argument.  Populists are arguing that Wall Street reaped all of the reward of our recent housing binge while homeowners (and taxpayers) are left holding the bag.

Andrew Foster, a Law professor at Duke University, puts it this way.  "Certainly some of these consumers might have been irresponsible in taking on more debt than they could handle.  The vast majority, however, were simply trying to buy a piece of the American Dream.  Instead of building wealth and enjoying the security of homeownership, they now find themselves trapped in a nightmare of predatory debt and foreclosure."

What Foster fails to note is that the "vast majority" who were "simply" (read innocently) trying to buy their piece of this particular American Dream...well, many of them were doing so by taking on more debt than they could handle.  An act that is, according to Foster's own reasoning, irresponsible.  There's granularity here in terms of responsibility. 

Yes, financial institutions are responsible for not properly vetting borrowers as credit worthy and able to repay.  Yes, government is responsible for not providing effective oversight in an excessively laissez faire market.  And yes, individuals are responsible for betting on the come--for expecting housing prices to ever rise, thus guaranteeing their decision to buy a bit more house than they needed...or even to buy at all.

I am glad that congress is adding some balance to Bush's original proposal.  We should restrict the compensation for failed executives who will benefit from taxpayer-supplied bailouts.  We should reap the future profits of the risk taxpayers are ponying up to today.  And there should be limited relief for homeowners who are genuinely struggling to pay mortgages due to adjustable rates...but not for those who, despite being able to pay, want the government to mark down their debt to current market values.

Bush also indicated in his speech that there would be time later to assess blame.  I suppose he's hoping for after January 2009.  In this, I disagree with him entirely, regardless of his motive.  Yes, we need to craft a plan to absorb the bad debt and protect financial markets.

But if we don't start parsing the causes of our current crisis now, the solutions are likely to be poorly aimed and only partially effective.   As I said above, there is plenty of blame to go around.

One concept we need to seriously reconsider is the sacred American Dream itself.  Not everyone can, or should, be a homeowner.  And certainly not everyone can, or should, borrow huge amounts of money at exorbitant interest rates in order to fulfill a dream that can, on a down market, turn into a nightmare.

I used to be vaguely amused by the customers who came into my bank to complain about a twenty-five cent service charge.  I would muse that they were survivors of the Depression and so they wanted to hold onto every penny.

In today's market, they look pretty astute.  I am positive that not a single one of them is defaulting on a predatory mortgage.

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