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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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Princeton, N.J.: If I sign a contract to provide mathematical consultation (I am a mathematician) to X, I can't sell my end of the contract to a graduate student without X's permission. Why can my bank sell my mortgage? Why can the people insuring my bank's end of my mortgage sell their end of the insurance policy? Why can investors buy insurance on whether bonds neither of them own will default? Have we gone nuts?

Chadwick Matlin: Answering your questions in reverse order:

4.) Yes.

3.) Because we live in a free-market system, and if there's money to be made, people will figure out a way to make it.

2.) See above.

1.) See above.

For more, read Liar's Poker by Michael Lewis. He explains how some of first mortgage packages were constructed. It's a good primer.

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Washington: A while back when the first of the home crisis hit, TV and print news were trumpeting that this was the end, of how huge the problem would be. Yes, people lost their homes and times got a bit harder, but it wasn't anywere near bringing the U.S. to its knees. Now, in the past couple of weeks, we again are hearing this doom-and-gloom mantra, and all the things that could go wrong with this bailout.

What I havn't heard is what economists think would happen if we didn't bail out these companies. I understand that things may get rough for a while, but are we only saving these failing firms because "they're too big to fail"? Do the high-level government people deciding on this have the same mentality about their own jobs? Too big to fail?

Daniel Gross: The warnings we get are mostly vague—credit markets would freeze up, the system would melt down. Beyond that, efforts to quantify the damage are really guesswork. We have no idea what would really happen. Several writers have looked back to the depression and talked about how much the economy shrank between 1929 and 1932. But I don't know why that should be the yardstick. The truth is, any efforts to offer concrete numbers on the unknown should be greeted with some suspicion.

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Denver: Why are we bailing out these for-profit companies? Did they not take the calculated risk/investment before everything tanked? How exactly will it affect our economy if we do not bail these banks out?

Chadwick Matlin: They did make a risk/reward analysis before everything tanked, but only for themselves. We've gotten in such a tangle that the rest of the economy is affected, and the bankers never did a risk/reward for the U.S. economy. That's the government's job, and that's why you're seeing the bailout now.

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Los Angeles: Isn't the bailout plan akin to welfare for the very rich?

Daniel Gross: To a degree, yes. But the shareholders of these companies, and many of the insiders, aren't getting much help. Rather, it's people who are invested in the stocks and bonds of other companies—ones that might have suffered somewhat but haven't keeled over yet and are likely to get psychological support from this—that are getting helped the most right now.

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Baltimore: I read this week (either in the New York Times or the Washington Post, can't remember which) that Paulson started warning the president in 2006 that the subprime/securitized mortgages were heading us toward disaster. Do you know if that is true? And does this not make the current crisis a fiscal Katrina, if you will? Thanks.

Daniel Gross: i don't know first hand if paulson warned bush about subprime back in 2006. I interviewed Paulson last week for Newsweek, and he said that when he took the job, he knew something bad was likely to happen before the end of the bush term. As in the past, they primary concerns had been about overseas. They knew a storm was coming, they just didn't see it originating in the U.S.

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Anonymous: President George W. Bush and finance specialists Bernanke and Paulson see the entire economy in danger from a widespread loss of confidence; what they fail to see is who caused these circumstances—namely the financial bosses on Wall Street with their investment banking instruments. Why must the taxpayer intervene with $700 billion for the bailout?

Shouldn't the people in this industry who have created the problem, be called on to collect for themselves the $700 billion bailout? This not only would correct further developments in the finance industry but also re-establish the confidence they lost. As an investor, I would not gain any confidence if I as a taxpayer had to repair the damages, while the finance bosses walked off with billions!

Daniel Gross: Yes. I made this case in an online column on Slate filed earlier this week. Anybody who is for the bailout should first be required to submit a plan on how to pay for it.

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Woodinville, Wash.: What is the real number? It seems to me that aside from infrastructure, this is shoring up the economic backbone of our society. If the insurance and housing finance fail, our economy would go into a tailspin. However, what we are writing is a new level of interest burden to our federal budget. When does our deficit become so large that we no longer can afford the interest? How big a percentage of the our budget is pure interest payments on the national debt? This is our society magnified. Do you think the people are ready to hear about a new economic solution to our system?

Daniel Gross: Good and big questions all. And there's no rule of thumb to determine how much federal debt is too much.

Chadwick Matlin: Alright, folks, we have to head back to our day jobs. Looks like Congress have reached a "fundamental agreement" on the bailout. Expect details to leak out as the day goes on. Thanks for the questions, and keep keeping a watchful eye on those tax dollars.