The fastest way to get policymakers to run for the door has been to mention the "B" word: bailout.

Of course, nobody likes bailouts. I don't either. Using the money of those who have worked hard and have been prudent to help those who have been less so is distasteful. We instinctively feel people should get their just desserts. Also, bailouts rightly raise the specter of moral hazard. Someone who gets away with being financially imprudent and does not experience financial loss has an incentive to do it again, perhaps to a greater degree.

However, we can no longer be stymied by ideology, theory, or fear. It is time that we face up to the facts of the current situation and take bold and creative action.

We are in our current financial mess only in part by reason of people who borrowed more than they should have and lenders who touted overly lax terms. That is certainly part of the story, but there is much more.

As with every systemic crisis, its roots are in failed public policies, and there is plenty of blame to go around.

Our society has lionized the consumer for a generation. Consumer spending has increasingly become the single most important prop to an economy that has lost its solid underpinnings. The latest binge has been based on the notion that the consumer rarely defaults on a house, housing prices will always go up, and the "wealth" in a consumer's home is a reason for us not to worry about the longest period of negative savings in American history. This was never sustainable.

Fueling the consumer has been gobs of liquidity that had no better place to go — liquidity that in large part has been created consciously through government action and then overlooked.

This excess was masked by large parts of the financial services system, where regulation has been limited and policymakers' sight lines have been cloudy at best. Whether low- or no-doc loans were suitable for the consumer was not really a regulatory consideration, particularly where they were originated by underregulated mortgage brokers and then found their way through structured products into underregulated SIVs and CDOs.

Even the regulated landscape has had serious public policy distortions, with an excessive reliance on mark-to-market accounting without sufficient flexibility, for example in the area of the allowance for loan and lease losses.

Adding to this witches' brew are fiscal and current account deficits that have continued to put downward pressure on the dollar, which in turn has been a factor in elevated oil prices, which in turn is putting downward pressure on the consumer, who is finding it harder every day to carry that excess debt load.

Pressure on financial services executives has come not so much from regulatory restraint as it has from analysts' quarterly earnings expectations and from the "arbs."

Regardless of the causes — issues that must be addressed in a deliberate fashion in a calmer time — now is not the time to worry about theories of moral hazard or who is to blame. The financial markets and the housing market are caught in a vicious cycle driven in part by fear.

The decline of housing prices is eroding the net worth of all homeowners and investors, seriously harming virtually everyone, including the careful and prudent. The continued downward spiral of home prices puts more people in financial jeopardy, creating the risk that the process will continue to feed on itself. The timing could not be worse, occurring just as baby boomers are nearing retirement.

Government leaders and regulators must do whatever it takes to stop the downward slide and give homeowners and investors confidence that we have reached the bottom.

Given what is at stake, I have long advocated the temporary creation of a mechanism like the Resolution Trust Corp. to deal with this crisis. In this regard, the Dodd-Frank bill is an important step in the right direction. In and of itself, had it been enacted sooner, it might have been enough to stem the tide. This is no longer the case. Now that the financial crisis has gone on for so long and has deepened, a more far-reaching effort is needed.

An RTC-like mechanism would not mean a bailout. Holders of mortgages and mortgage-backed securities that have lost value would have to suffer a permanent impairment of that paper, just as shareholders of Bear Stearns have permanently lost value. However, a fully scaled RTC-like mechanism buying a broad swath of real estate assets would stabilize housing prices and work to permanently resolve troubled assets. This would put a much-needed floor under the financial markets. The new RTC also could work with the FDIC to help speed the resolution of troubled institutions.

In sum, a new RTC would help clear the markets more quickly than would otherwise be the case.

This mechanism worked in resolving the crisis of the late 1980s and early 1990s. It helped build a financial base that supported a decade of growth and expansion.

This approach also worked in 1933, when the Congress created the Home Owners Loan Corp. to help homeowners refinance as prices fell. This time the mechanism would be a bit different. For one thing, I am hopeful it can be more of a public-private partnership than previous ones.

The alternative is to stay on the current roller coaster years longer. This would give rise to needless pain for individuals and a weaker economy.

An RTC mechanism is only the first step in reforming our economy. There are a variety of others that should be taken for the future. But now is the time to get past problems firmly behind us. We cannot be timid.

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