The House Hank Helped Build

If you're trying to talk an insane person off a ledge, you're going to do everything you can to calm them down and get them to come inside. You're not going to remind them that, well, their life does kind of suck and they have to take more responsibility for the mess they find themselves in. That would not be a good idea.

When you have an economic mess like the one we're in now--falling housing prices, a credit crunch, unstable capital markets, and whacked-out energy prices--you need a big cup of calm. And the housing bill that passed the House of Representatives this week should provide some chamomile tea (if not Xanax) for a jittery economy.

It's not a great bill. The conservatives are right that there's a lot of pork in it. And it doesn't fix Fannie and Freddie in the long term, even if it provides more regulation. But the bill should help ease stress in the housing markets and, more importantly, if it hadn't passed the guy on the ledge might have jumped. The consequences of not coming up with some kind of housing bill would have been far worse. Yes, the housing bill leaves the taxpayers on the hook for a Fannie and Freddie bailout, but that was true before the mess anyway.

I've been critical of Hank Paulson. I thought his blueprint for reform of financial regulators was too timid and that he was still too wedded to a pre-mess mind-set of deregulation. But he's been flexible, and he understood the importance of getting a housing bill through and seems, according to the White House, to have been responsible for President Bush agreeing to drop his opposition to the measure. It probably doesn't hurt that former Goldman man Josh Bolten is still White House Chief of Staff.

Over lunch yesterday with a mergers-and-acquisitions lawyer, we were speculating about what kind of mess we'd be in if John Snow or Paul O'Neill were somehow still Treasury secretary. We pictured soup lines, Busby Berkeley musicals, and Hoovervilles. Paulson may have struck out at some of the big things he wanted to do--namely, getting the Chinese to move more aggressively on the yuan and taming U.S. entitlements. But at least he's shown a willingness to respond to this rolling financial mess. I don't share his view that Fannie and Freddie have to remain shareholder-owned companies with such a pivotal role in housing, but he was right to get out in front of the cameras a couple of Sundays ago and state what everyone knew: that the federal government stood behind these hybrids.

When the Goldman giant took over at Treasury a couple of years ago, he surely didn't foresee that he'd be in the business of trying to talk crazy people off the ledge, but that's where he's ended up and, so far at least, we're all still here.

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