Washington Post columnist Steven Pearlstein was online Wednesday, Sept. 10 at 11 a.m. ET to discuss the economy and government bailouts.

Read today's column: Don't Like Bailouts? Consider the Alternatives.

A transcript follows.

If you missed Pearlstein's discussion of the Fannie Mae and Freddie Mac takeover, read the transcript from Monday's discussion and his column that day, In Crisis, Paulson's Stunning Use of Federal Power.

For full coverage of the government's take over of Fannie Mae and Freddie Mac, click here.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.

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Washington, D.C.: Why is the Federal Housing Financing Agency being put in charge of the takeover of Fannie Mae and Fredie Mac? Isn't that Agency comprised of essentially the same people who had regulatory responsibility for the housing mortgage industry in the past and allowed it to get into the current mess it is in?

Steven Pearlstein: The agency is the same agency that has always regulated Fannie and Freddie, except now it is an independent agency (not beholden to HUD) and has a new hame and expanded powers. But its basically the same folks. These people, however, were NOT in charge or overseeing the housing mortgage industry generally, in the sense you probably mean it. The failure to regulate the brokers and the mortgage bankers as they went about the business of writing too many mortgages to too many people who couldn't afford them -- that was the failure of the Federal Reserve to use its powers to protect consumers and investors.

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Anonymous: My vote is not to bailout Freddie and Fannie, let the nature take its course that would probably plunge the nation into a recession/depression, then use the "bailout money" to recover from said course.

It seems like we Americans don't understand what it means to take the good with the bad. We all benefited and loved the housing boom. But for some reason we don't want to suffer through the bust portion of this cycle. The bailout is just delaying the inevitable, and this administration just wants to make sure it doesn't happen on their watch. The lack of personal responsibility for our choices is astonishing.

I realize that some may want to point to the fear factor of this problem -- what if things get as bad as it did in the Great Depression. Well, try to imagine what our lives would be like today had there not been a Great Depression -- many things/policies/innovations that we take for granted in our currently life has come from this period of time.

Steven Pearlstein: Well, that's a pretty long term, Darwinian view, albeit an intellectually consistent one. The problem with your analysis, it seems to me, is that you think that if somebody is helped by the government to avoid the absolute worst consequences of their actions, but still be forced to suffer significant pain, then that is not "taking the bad with the good." Most of these rescues, whether they be of companies or homeowners, still impose significant penalties on many of the people who made bad decisions -- just not the FULL measure of the punishment from a market that, frankly, is as irrationally negative now as it was irrationally positive during the boom. It would be better if we didn't have to do that. But it just may be, as I suggested today, that WE will be better of if we do this, not just the people who it appears we are helping. This is for US, not them.

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Washington, D.C.: Steven,You often use the word "spiral" to describe the potential financial meltdown in a "do-nothing" approach. Aren't financial markets guided by fundamentals like housing inventory, raw materials, income levels? The capacity for the economy to "spiral" seems to contradict a large economy that continues to expand.

Steven Pearlstein: No, there are positive and negative feed-back loops as part of market dynamics that can variously be described as "vicious cycles" and "self-reinforcing cycles" and "manias". These do not reflect the underlying economic fundamentals, but rather the short-term herd psychology of investor markets. And these irrationally swings can cause a lot of damage before they are corrected, not just for the participants, but for innocent parties. So that is why it is sometimes worthwhile to intervene in some fashion. Not often. Not without great trepidation. But yes, sometimes.

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Severna Park, Md. : Hi Steven - you have made it clear that you think the bailouts are a good thing, and I hope you are right. You've also said many times that the individuals that got rich from all of this do not deserve punishment. While I don't necessarily agree, I'm not going to argue that point. What I would like to hear from you is whether anything can and should be done to reduce the opportunities for people to profit in this way in the future. Do you see changes to the tax code (so everything they make is taxed as income), or changes to the composition of boards of directors, or anything else?

You know, it would be interesting to ask your readers what they think should be done to guard against this happening again. Who knows what we might come up with? I personally would like to see a fee, like all of the fees that are assessed on us little guys, assessed on certain financial transactions and applied directly to the debt we all just shouldered because of this mess.

Steven Pearlstein: First, let me be clear: I never said, wrote or thought that the people who got rich from all this don't deserve punishment. If you mean punishment like being sent to jail because they made misjudgements in terms of investment or corporate decisions, okay -- that happens in business. People make mistakes. But if y ou mean suffer financiallyh, then of course they should. That's why we pay executives with stock and stock options, so that they suffer right along with the people whose interests they are supposed to be furthering. And all of the top executives in these companies taht were "bailed out" lost lots and lots of money -- probably more than anyone else. So they were punished.

What about the big salaries and cash bonuses they got? Well, they got them, under an employment contract, and in a country with the rule of law, you just don't go back and take them back, unless there is a clause in the contract that allows the company to do that. Maybe such clauses should be included in contracts, but if they aren't, then there's not much to be done about it now. Shoulda, woulda, coulda doesn't count.

Using the tax code is a terrible idea. But you do suggest something that we should consider: a small fee on all financial transactions that goes into a rescue fund that the Treasury and the Fed can tap to help finance these bailout of firms that are so big that their failure poses systemic risk. I think that is the best idea I've heard in a long time. Of course Wall Street would immediately jump up and down and say that it would destroy the US financial services industry and make us non-competitive and drive everything offshore to Bermuda or London. But what can you expect from people who brought us this crisis in the first place.

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Malvern, Pa.: I can't seem to put my finger on what, if anything, is being done to tighten the regulations around mortgage origination. Providing a mortgage loan to someone who has no verifiable income, no assets, no money down, even no job.... This seems to be where the problem begins, what's being done about it?

Steven Pearlstein: We have to be careful about regulations that proport to prevent people from doing stupid things. If a mortgage lenders wants to make a silly loan like that with its own money, then that's fine. When it makes such a loan with igovernment insured deposits, however, or when it sells the loan to investors without fully disclosing that it uses sloppy undewriting to the investor or the rating agency, then that is a matter for regulation.

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Manassas, Va.: I don't agree that bailing out F Mae and F Mac is better than letting them sink (I'd say "correct themselves"). It's that kind of mentality that justifies governments' poor management and involvement in many other ventures costing taxpayers uncounted billions of dollars (Medicare, Social, Security, Medicaid, foreign aid, etc). People have to understand that there aren't free lunches, a belief that has become more and more pervasive since after WWII.

However, my main beef is the lack of outrage by the politicians, the media, and the public. Remember Enron? Compared to the F Mae and F Mac fraudulent and deceptive management, Enron was a kid stealing cookies from a cookie jar.

Where are the stories of human drama? Why aren't news media parked in front of the CEOs' homes? Why haven't top officials been summoned to Congress a la Ken Lay for explanations? No, Congress prefers to discuss about steroids in baseball.

Steven Pearlstein: Sorry, but I don't agree with just about anything you just said. Fannie and Freddie are guilty of lots of misjudgments, but if you have any evidence of outright fraud, you should immediately call the SEC and the Justice Department. Otherwise, you should not make libelous accusations on our website.

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Herndon, Va.: The government will receive a warrant to claim up to 80 percent of shares. Once this headlines die out, would it be out of the realm of possibility for govt not to exercise the warrant - persuaded by the lobbying of wealthy people who have a lot to lose.

Steven Pearlstein: It is possible, but the Treasury has indicated that it will do whatever is in the best interest of taxpayers, which would be to exercise them at some point when the enterprise actually has a value. The reason they took warrants rather than just taking the stock now has to do with some accounting rule that would trigger if they did it now, I am told. But for all intents and purposes, I think we can say that the government now has a controlling interest in the company.

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Columbia, Md.:"But using moral hazard to argue against the carefully structured rescues of Bear Stearns or Fannie and Freddie is a bit likely arguing that any sentence short of capital punishment is insufficient to deter bank robbery..."

That is not fair at all...A CEO that is allowed to take in $200 Mil for his 'success' should be FORCED to return most of it, if not all, and not just lose his job when that same CEO drives the company to the ground. This is what I don't like about Capitalists - you allow the 'market' to decide a CEO's income, but always always always find that losing a job is penalty enough for a CEO. What about the lives that are ruined by the CEO's failure or greed? Who decides what penalty is enough when the common man is forced, thru no fault of his, to lose his house, job and living? Who is there to say "don't take the house away" or "find him another job"? Who indeed?

Steven Pearlstein: That would be a bad outcome, what you describe. Which is why CEO compensation has to be better constructed, so that the stock must be held for long periods, even after the executive has left the company.

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Washington, D.C.: Why do you think "moral hazard" only applies to management and shareholders? Isn't it possible that moral hazard could also apply to debtholders as well. With any financial institution the majority of market discipline comes from the debt side. I have a hard time seeing the Chinese Central Bank as an unsophisticated investor, they have already suffered losses from currency risk on the their GSE holdings, so why isn't it fair for them to take a little of the credit risk as well?

Steven Pearlstein: Yes, you have identified the weakness of my moral hazard argument. I was waiting for someone to spot it. Congratulations.

Yes, it is true -- bailing out bondholders and lenders will make them less vigilant in making future decisions. That is true as it relates to Bear Stearns. But it is not true as it relates to Fan and Fred, because everyone knew that there was an implicit government guarantee. That's why central banks bought them, and why they were not discouraged from buying them. They were viewed as being as solid as US Treasuries. And no Secretary of the Treasury ever called up and warned them that they were wrong.

So this was a unique case, and therefore one taht doesn't carry with it much moral hazard. Bear Stearns, however, does, and you are right to point it out.

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Rockville, Md.: Why is the reserve requirement for commercial banks a static percent? Shouldn't they be required to build up additional reserves when business is good and it won't hurt too much to deleverage a bit, and be allowed to use up that extra reserve when times are bad and the collective actions of all of them reducing exposure threatens to causes a credit crunch? If they are going to dip under the required percentage whenever a moderate number of loans go bad, the spiraling down is nearly inevitable.

Steven Pearlstein: Absolutely it makes sense. It is a great idea. Regulators thibnk it is a good idea. the only problem is that when they try to enforce it during good times, the companies bring all sorts of political pressure and Congress forces them to back off. This is a perfect way to take the froth off irrational exuberance while providing a rainy day fund for when the boom turns to bust. unfortunately, the knuckleheads who run the financial services industry can't help themselves when times are good. They begin to believe their own press releases about their own brillance and think the last thing they need is for some pointy-headed government bureaucrat to tell them how to behave. You can just hear them now in the country club locker room, can't you? Well, guess what. It turns out that they do need pointy-headed government bureaucrats telling them how to protect tthe interests of their shareholdesr and lenders and employees.

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New York, N.Y.: For the uninitiated, could you please explain the difference between Fannie Mae and Freddie Mac --- if there is one?

Steven Pearlstein: For all pratical purposes, there is none any longer, and hasnpt been for many years.

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College Park, Md.: Steve,

Thanks for all of your great reporting on the economy. It is very helpful to have a pragmatic person looking at these issues where there are only bad choices to be made.

You said something on the the NewsHour the other night that bothered me. You said that Fannie and Freddie could have raised money in the market had it not been for the implicit government guarantee because the new investors were afraid the government would come in and wipe them out. If this unintended consequence is really true then seems the government has been "unfair" to the existing stockholders of Fannie and Freddie, especially since it is unknown whether or not they are insolvent. I understand your point that you can't let these companies fail but is there another way that the government could have provided the backstop while allowing the market to work and protect the interest of the existing shareholders. For instance maybe the governement could have announced the terms and conditions under which it would move in and then let the companies see if they could raise money in the market.

I agree with you that the the real moral of the story is that you have to have the right kind of laws and regulation in place so that you don't get to this point. Thanks.

Steven Pearlstein: The only reason the government provided the backstop authority to the Treasury was because it was thought, by the policy makers and by the companies themselves, that things were spiralling out of control and that something had to be done. So they decided to take ahalf step and see if that calmped down the market psychology. It did. And the companies might have then gone on to raise additional equity capital if the Treasury could have issued some sort of statement saying that any new classes of preferred stock that were issued would be treated in the same way as a subsequent government investment, and not put farther bak in line. But Treasury refused to do that, for reasons that aren't exactly clear to me. So the privat equity firms taht were interested backed off. Maybe Paulson didn't want to get himself into a potential situation where it could be argued that Treasury was using taxpayer funds to bail out the Blackstone Group, which would have been terrible political optics.

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Danvers, Mass.: If a tree falls in the forest, etc...

If the government signs up to take business risk, puts out no cash, and many years later gets out of it without paying any cash, was that a good deal? Most finance guys I know would be delighted to take the other side of that trade all day long.

Steven Pearlstein: Yes, although you don't want to make a regular habit of it, because if you do it too often, if you don't maintain the great reluctance to do it, then what you get is France.

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NW, D.C.: Steve,

There was an article in the WP yesterday that discusses how the takeover of Fan/Fred is affecting small banks. It was a pretty good article but I don't think it really stressed the danger that could happen. If the Federal Government does not do something to help these smaller banks, many will collapse. September 30th is the end of the quarter so a lot of these banks are going to have to do write-downs in 20 days !!!

Paulson claimed that the treasury would have plans for small banks who where hurt by the takeover. I have talked to an insiders at a small bank who said they had no idea what those plans are.

I agree with you that taking over Fan/Fred was probably a good idea, but it looks like they didn't cross their Ts and dot their Is. The financial market could be in for one wild ride

washingtonpost.com: Mortgage Giants' Rescue Imperils Some Banks (Post, Sept. 9)

Steven Pearlstein: The folkls at the FDIC say they will work with the smaller banks, but that's working with them to avoid a takeover, not avoid having to take a big hit to their shareholders. Nothing to do about that, I'm afraid.

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Hurricane Greed: So now we are in a massively destructive financial storm, which is the result of the purposeful failure to adequately implement the regulatory mechanisms which were in place to prevent this from happening. From the SEC to the CFTC to the Fed to the Treasury, among others, they allowed it to happen. At the eye of the storm are a small number of politically well connected individuals who have made incredible amounts of money and in the process have radically destabilized the economy, leaving the vast majority of individuals to face ever increasing financial uncertainty, decline and ruin. The wealth transfers to these few "haves" are staggering.

In your September 5 column "A Con Game In Pinstripes", you described Wall Street's culture of unregulated greed, which has led to where we are today. In your August 15 column "Sir Alan's Follies" you very accurately described the poster boy of the con game in pinstripes. Their official brand is "free market capitalism", which means unregulated greed. Their method of operation is to privatize the profits, and socialize the risks. And so, here we are. The aftermath will look, smell, and feel like the economic equivalent of New Orleans after Hurricane Katrina. Sorry folks, your economy has been hijacked by robber barons.

washingtonpost.com: A Con Game in Pinstripes (Pearlstein, Sept. 5) | Sir Allan's Follies (Pearlstein, August 15)

Steven Pearlstein: Well, I generally avoid using the word greed, since it is economic self-interest that makes capitalism work. But there is a quality of heads I win, tails you lose to some of our high finance arrangements, particularly when it applies to Wall Street masters of the universe, and yes, that's why we need good, strong, vigilant regulation that is shielded from political interference. And the next time you hear Alan Greenspan or the head of the SIFMA getting all outraged about some bureaucrat substituting his judgment for that of the "the markets", remember that that is exactly what we want in regulators -- to save the markets and companies from their own worst instincts. Not all their instincts, just their worst ones -- the ones that wind up coming around to bite the rest of us in the you-know-what.

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McLean, Va.: Your discussion neglects the fact that the socialism actually occurred when these entities were created. They have been taken advantage of by nearly everyone, including neo-classical economists, for last half-century, providing a pipeline for real estate speculation, increasing the price of houses many times more than any other measure of inflation, and is not unlike the margin accounts of the '20s. There is no moral hazard to worry about, it's already here. Sinking that much money into real estate has certainly been a huge drag on real economic growth, too. Prices should be allowed to drop to a level that reflects what the property is actually worth even though I realize that as a result much of it will change hands.

Steven Pearlstein: Actually, I don't disagree with anything you say. We way over-subsidize housing in this country. The unlimited tax deducitibity of home mortgage interest is the most egregious way but Fan and Fred were also part of that picture.

Having said that, I think we do need some institution that continues to provide financing when private lenders head for the hills, which they do periodically. Housing is a very key industry in the economy and if we can flatten out the housing cycles a bit by keeping the funding flowing to good loans during the downturns, its not such a bad thing and doesn't increase home prices over the long term. I hope you would agree with that.

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Seabrook, Md.: From Paul Krugman's 12/27/07 NYT column: "Consider the press conference held on June 3, 2003 - just about the time subprime lending was starting to go wild - to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw." A Web search indicates that you have never written about this disastrously shortsighted meeting of Bush administration regulators. If true, why is this? Do you have any plans to someday inform your readers of this meeting?

Steven Pearlstein: Actually, I'm part of a conspiracy on the part of the MSM (that's mainstream media) to withhold this kind of information from the public because (1) I am a toadie of the special interests; (2) I am a secret agent for the Bush administration; and (3) I really, really, really want to leave the field open so Paul Krugman can win both a Pulitzer Prize and a Nobel Prize both in the same year. Now you've outed me. Congratulations.

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Vancouver, Wash.: Mr. Pearlstein -Thanks for taking our questions.

Can you tell us who will benefit and who will lose in the Fed takeover of Freddie Mac and Fannie Mae? Will it be Wall Street banks and Hedge-Fund Investors, the Chinese, other institutional investors, the small investors, the tax-paying public - in brief who stands to win (or cut their losses) and who stands to gain - in the short term?

Thanks

Steven Pearlstein: We all win -- that's the point. This is for us -- everyone who would suffer from the collapse of the credit markets and the deeper recession that would insue. Oh, and also everyone who holds a Fannie and Freddie bond is a winner, which includes central banks around the world, pension funds, mutual funds, banks, hedge funds and some individuals. If the government hadn't intervened, they might have (stress, might) lost a few pennies on every dollar they had lent, along with the interest rate payments they were expecting.

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New York, N.Y.: Steve, I haven't seen in your recent "Bailout" columns (which seem to come out every other week) you take a position that the Treasury should be more vocal in its demands of companies which it offers assistance. Why shouldn't Treasury make more demands of such companies, whether in areas of risk, corporate governance, executive compensation, etc.? Am I missing something?

Steven Pearlstein: The Treasury and the Fed have been very tough in making these deals. It would be very inaccurate to suggest that these are sweetheart deals in any respect.

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Va. Beach, Va.: How can we as the public invest in FRE and FNM... Any stock left??

Steven Pearlstein: Yeah, plenty. Very cheap, too.

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Seabrook, Md.: Can you give us some idea why your column in today's Post did not mention President Bush even once, despite the fact that he presided over the credit debacle from beginning to end, and was fiercely hostile to suggestions that additional financial regulations were needed? This omission, which routinely occurs in Post opinion columns that discuss current national disasters, makes it appear, perhaps falsely, that at the Post "Bush" is often the name that be spoken as little as possible.

Steven Pearlstein: See previous answer about my being an agent of the Bush administration.

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Baltimore, Md.: Mr. Pearlstein: So today the old line Wall St. firm Lehman Brothers announced it is drastically reorganizing and trimming to reduce exposure in real estate. Are there more big names whose survival is threatened by the housing market collapse? Thanks.

washingtonpost.com: Lehman Brothers Announces $4 Billion Loss (Post, Sept. 10)

Steven Pearlstein: Sure, and you've been reading about them frequently. Lehman, WAMU,. Wachovia. Merrill, etc. etc. etc.

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Alexandria, Va.: Some people are saying that the FDIC is destined to follow Fannie and Freddie into a government sponsored bailout. Do you agree? (Say it ain't so!)

Steven Pearlstein: The FDIC may need an emergency loan from the Treasury. But it will be required, when times recover, to increase the insurance fee on all its participating banks so it can pay back the loan. There is some taxpayer risk here over the long run, if the sums are simply too great, but I don't have any reason to believe that its not an amount that can't be paid back in time.

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Brett, Falls Church, Va.: Why do people always bemoan a depression? Columnists like yourself always talk as if a "Financial Armageddon" would take place, but after The Great Depression, America has had almost 70 years of prosperity. Older people, most politicians and leaders, risk aversion changes as they age. When you are young you are willing to take on more risk, thinking you will make it back in the future if you fail. Older people do not have this precious recovery time, therefore are adverse to sacrifice. What is the point of sacrificing something for possibly nothing in return before you die? People like yourself always strike fear in the hearts of people with the words "crisis", but the reality is that life always moves on. Just like the Roaring 20's, America's collective bills are mounting, but our leaders and elderly do not want to bare the price for the prosperity they enjoyed. Have you ever thought about the precedents that have been set this last year, and the dire ramifications and burdens they most likely will inflict on the following generations? Is it right to avert disaster today, only to saddle the young and unborn citizens of this great country with a more challenging future?

Steven Pearlstein: Gee, I don't know. Having 20 percent of the country out of work, a quarter of households losing their homes, 15 years of economic decline and stagnation. Call me a soft touch but I kind of think that's something you might want to avoid, if possible,

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Chicago, Ill.: They say there are no libertarians in financial crises. At what point will the right have to admit the ideological collapse they have suffered recently? Will the Press ever press Bush or McCain on their blithe abandonment of the free market? Is the era of Freidman officially over?

Steven Pearlstein: Short answer: Yes.

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Anonymous: If the government had set up GM or Ford to make those loans as car loans under the National Affordable Trust Fund Act would that not have ben unconstitutional? How is FNM and FRE diffferent. The act was passed in July 2007 and substantialy brought about this calamity.

Steven Pearlstein:

Actually, it would appear GM and Ford were making car loans that were every bit as lousy as the mortgage industry was making mortgage loans, which explains why their financing subsidiaries are now experiencing huge spikes in defaults. And it didn't even take an act of Congress to get them to do it!

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Brooklyn, N.Y.: Comment: In the mid 1990s I worked at a mid-size commercial bank in NYC, which has since been taken over. The bank I worked for made a ton of money in "No Doc" loans, with minimal credit losses. The key? Require a 30-40 percent down payment. The bank's biggest group of customers were immingrants, primarily Asians, who worked in family businesses. The moral of the story: "No Docs" can work well if done right. We can't have a system where everyone takes out a 30 year fixed loan and puts down 20%. I hope we impose more sensible regulation, but don't go overboard.

Steven Pearlstein: That's right: no doc loans were invented for people with lots of assets who could be satisfied with a loan for 50 percent of the value of the property. But you don't give a no doc loan for 110 percent of the value of the property, which is what they were doing in the end.

You don't have to be rigid to do regulation correctly. But you do have to be smart.

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Cameron, N.C.: Sarcasm duly noted.

Steven Pearlstein: Thanks.

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Fort Myers, Fla.: Down here, we have an abundance of very new storefront banks, many of which were chartered by people in the construction business and designed essentially to keep the loan fees in-house.

I borrowed from them, but my own money is in B of A where I can see it.

Oh, and Seabrook should mix in some Decaf.

Steven Pearlstein: Thanks.

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Rockville, Md.: Sallie Mae, a former Government Sponsored Enterprise (GSE), privitzied. Although Sallie Mae's importance to the total US economy was smaller and different than the importance of Fannie and Freddie, do you see any parallels or lessons-learned from that former GSE?

Steven Pearlstein: The lesson is that "privatization" is no magic cure for bad judgment.

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Anonymous: Mr. Pearlstein,If indeed doing nothing is worse than bailing out these corporations how do we accomplish the following:

1. Ensure the key executives in these companies and anyone else who presided over or madde decisions to create these debacles leaves without financial compensation.

2. Create some accountability and some reasonable assurances that Congress and the Administration begins to do their job(s) to ensure that there is proper oversight and regulation that will protect the individual investor and citizen form this gross malfeasance. We have had 2 major catastrophes in the last 8 yrs. - the Dot.Com Wwall Street collapse and now the Housing/Mortgage fraud. In both cases fraud has been committed against us and too many executives walk away with their pockets full and many lives are broken. There needs to be some quid-pro-quo without whicH we will witness similar events in the future.

Michael

Steven Pearlstein: Look, we've talked today about the need to structure employment contracts so that they involve some sort of clawback or delayed payment. We could also talk about whether the overall level of compensation is simply too high at the top, which obviously it is. And we could talk about whether the compensation has encouraged unnecessary risk-taking on the part of executives. All reasonable topics for debate.

But let's keep this in perspective: the amount of money you are talking about, while large compared to our paychecks, is a drop in the bucket compared to the financial disasters these people have caused. So let's keep our eyes on the ball, shall we, and not get distracted by small things that, while they get us very angry, wouldn't solve the basic problem. You can take back every dime that was paid to Dan Mudd and Dick Syron and, believe me, it wouldn't do a thing to noticeably improve the balance sheet of Freddie and Fannie. And on that point, there really is no debate. It's very much a side issue.

Or as I wrote previously, let's remember this isn't a morality play. It's a financial crisis, and we need to do whatever we need to do to get through it with the least harm to the least number of people -- even if it means that we don't mete out a full measure of punishment to everyone who is to blame.

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Roayl, Oak, Md.: I worry that we will "privatize" these firms and hand the business over to the same people who brought us the CDO mess and sloppy underwriting policies we are trying to get out of.

Steven Pearlstein: Can't get rid of these folks, can we?

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Washington, D.C.: Mr. Pearltein,

I heard you say in an earlier chat that the full faith and credit of the US stands behind the bailouts. At what level do you think our debt (400 some billion) will make the US government less creditworthy to foreign investors. Are we getting close to that point?

Steven Pearlstein: I don't think so, no. Fan and Fred have lots of debt outstanding, but they also have lots of assets to balance thos eobligations. There is a question at the moement as to whether the ultimate value of those assets will exceed the liabilities -- nobody really knows or can know that -- but if they come up short, it won't be significantly short. And however big that shortfall, it is well within the ability of the US government to pay back over time.

If you really want to worry about the solvency of the US government, think about Medicare, not Fan and Fred.

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Steven Pearlstein: Afraid that's all the time we have for today, folks. "See you next week."

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