Paulson's New Plan to Stop Home Price Declines

The federal government is panicked and has no clue what to do. The latest strategy from Paulson & Co. is to stop home price declines by artificially lowering mortgage rates that would allow people to pay higher prices for homes. (Sound familiar?) I generally agree with Henry Blodget on the subject. In short, it's a bad idea.

Best case scenario, in our opinion, the new plan will slow the rate at which house prices are falling and make the "adjustment" to the new reality less violent. It will probably also stretch out the time it takes the country to work through the crisis (by postponing the inevitable). Given the rate at which the economy is deteriorating, however, shallower-but-longer may just be better than deeper-and-shorter.

I disagree with his final sentence; this is what happened as a result of the New Deal. In short, a 10-year depression is really not worth it. Or ask Japan. A 20-year stagnation is not worth it. Let the pain happen and let the economy correct on its own. The economy will survive. And a year (or less) from now, it will mostly be behind us instead of still dangling in front of us.