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Time To BailDaniel Gross and Chadwick Matlin take readers' questions on the government's financial-rescue plan.

Posted Friday, Sept. 26, 2008, at 10:57 AM ET

Read more about Wall Street's ongoing crisis.

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Daniel Gross: You're right. There's a huge link between politics and housing. The political system, in ways large and small, encourages homeownership—mortgage interest deductions, constant advocacy from the president on down about how home ownership is good. And we put policies in place that were supposed to make housing affordable—instead what they did is help people get into homes (interest-only mortgages are a classic example, sold as a way to get the maximum tax benefit even if you can't really afford to build up ownership)

Housing is starting to come down in price, and so is becoming affordable. But credit is less available. You probably have to make a bigger down payment and pay a higher interest rate than you did five years ago. So the price of the house is only one factor.

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West Yellowstone, Mont.: I am not an expert on Wall Street, but as a retired worker who has had three houses (at different times) with mortgages, I understood that the types of mortgages with balloon payments after a few years would cause an impossible load on my finances. How could Wall Street executives, Congress or anyone else not know that this catastrophe was imminent? Will there be any accountability, or would that mean prosecuting most of the Eastern Seaboard?

Daniel Gross: This is a topic for a great book. But in short, we—Wall Street, borrowers, government officials—convinced ourselves that interest rates would always remain low, that housing prices would always rise, and that anybody could always refinance or sell their way out of trouble if they wanted to. Mortgage brokers would tell people not to worry about the balloon payments in the distance because they could just take their profits or refinance as needed.

For more on the foreclosure issue, check out Mark Gimein's article on our sister site—The Big Money.

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Los Angeles: Why isn't Congress insisting on an equity position in the financial institutions as a condition to the bailout? If Paulson (or Bernanke, for that matter) were unable to recognize the dangers inherent in the current, unregulated mortgage equity market, how can they claim to be qualified to clean up the mess that the mortgage-backed "securities" have caused?

Chadwick Matlin: They still might do this, similar to the warrants they hold on AIG. (For an explanation of the inexplicably complicated warrant system, see this article.)

This probably won't happen en mass, though, because Republicans would call the Democrats Socialists. And a red 'S' may as well be a scarlet letter in this country.

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Richmond, Va.: What I find most frustrating about this whole plan is the way that Paulson and Bernanke have presented it as the only option available. I suppose this makes strategic sense from their standpoint, but it basically ha sfrozen discussion of any viable alternatives. Because Congress only seems interested in posturing about executive pay, I'll ask a question that nobody there seems interested in: Are there other ways to restore some liquidity to the financial markets and prevent the credit freeze that threatens the system? A corollary: Just how did they come up with the figure of $700 billion? Is this just their best guess for the value of all those faulty mortgages floating around the securities markets? Thanks.

Chadwick Matlin: Sounds like you invite Chuck Schumer to dinner. Earlier in the week, he was making noise about releasing $150 billion at first, and seeing how that goes. Sounds like a reasonable plan to us. Paulson said it had grave consequences, but couldn't articulate them.

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Wall Street Origins: I read that Wall Street originally got its name from a wall that was built to keep pigs in their sty. How did they ever get over that wall and create the modern financial system we (don't) have today ?

Daniel Gross: practice, practice.

No, that's how they got to Carnegie Hall

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Mount Vernon, N.Y.: According to Jonathan Alter's book, before the inauguration in 1932, Hoover tried bamboozle FDR into supporting Hoover's recovery program and swear off any further government intervention, which FDR skillfully dodged. This is an attempt by Wall Street—and their stooges inside the Bush administration—to steal the government's liquidity and direct it to their own enrichment, and rob Obama of any ability to fund his own programs. To hell with them.

Daniel Gross: Thanks for that, and for plugging the book of my Newsweek colleague Jonathan Alter. It's called The Defining Moment and is available in paperback.

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Derry, N.H.: Do either of you see a connection to our current fiscal mess and the response (or lack thereof) to the Enron/Worldcomm crisis? Did the repeal of any legislation or the timidity of the response to those failures allow greater speculation or lessen oversight to the same end?

Daniel Gross: Not so much. Yes, there were regulatory failures galore in this instance, but many dealing with mortgages were at the state level. The Wall Street investment banks that are seeking help so desperately have been very successful in warding off regulation this decade.

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Los Angeles: I'm being forced to retire ... why can't I use my pension to bail myself out and not have to pay penalties?

Daniel Gross: good question. If only you were an investment bank.

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Oviedo, Fla., single mom : This "liberal Democrat" is embarrassed by the grandstanding I see on the Hill. Dopes with no economic background are jostling to get in front of microphones and witlessly scream "no taxpayer bailouts for billionaires!" Makes me worried, if this represents our best and brightest. It is as if we are debating if a car with no oil should just be sent out on the road. Being mad at the person who didn't check the oil won't help the drivers, especially if the engine seizes. I like the idea of a government plan that gets banks back in business and holds the mortgages—most of which are sound—while the economy comes around. If CEO pay needs to be trimmed (a red herring in my view) to get it done, do it. Hank Paulson is sexy, by the way. Tall, intelligent, successful and forceful.

Chadwick Matlin: Please send all Paulson fan club registration forms to Oviedo, Florida. Complimentary pin-up included in reply.

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Princeton, N.J.: Now we hear from the head of the Congressional Budget Office that the bailout may make things worse. Why should we believe the Bush administration when so many experts disagree, and when we know they are congenital liars?

Daniel Gross: A rhetorical question. And the answer is—at some level, we have to take them at their word and hope for the best. (Gulp!)

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Gaitherburg, Md.: What I do not understand is why are we trying to go back to the way the things (easy credit) were. If we are attempting to go back, then this $700 billion only will postpone the inevitable. If we're not, then whether this $700 billion is injected or not, get ready for some serious belt-tightening. Do you think the banks will offer easy credit ever again?

Daniel Gross: You're right there. We're not going back to the easy money era of 2005, even if the $700 b goes into the system straight away. Credit is simply going to be less available to a wide range of people and companies.