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Mortgage mess: Who gets help and who pays?

Debate over what's fair and what's wise is likely to intensify as US tries to contain the crisis.

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The federal government is increasingly focused on how to resolve the US mortgage mess, but the effort means grappling with controversial issues of who should receive help and who will pay for it.

Few taxpayers like to hear talk about "bailouts," especially as many tighten their own belts to deal with rising energy and food prices and falling values for their homes or stock investments.

Questions of fairness are sure to figure in the policy debate – and are already surfacing on the presidential campaign trail, on talk radio, and in congressional committee rooms. The people who might get bailed out, after all, include the same reckless lenders and often-speculative borrowers who helped cause the mess.

Should mortgage companies be forced to knuckle under so borrowers can keep their homes and avoid foreclosure? Should taxpayer money be used to help troubled banks?

To a large number of Americans, such interventions in the marketplace are wrongheaded. Still, signs of economic weakness in the past month have made a hands-off approach less likely, analysts say.

"[One] choice is to be very puritanical and say that those who have sinned must suffer. The problem is that so many have sinned that all of us must suffer," says Ed Yardeni, an economist who heads an investment research firm in Great Neck, N.Y. "The mortgage market is really way too big to [let it] fail."

As he sees it, the whole economy is beginning to suffer through a recession, caused in large measure by the decline in home values and credit availability. Policy efforts may cost taxpayers some money but could also prevent a deeper slump.

"We like to believe that we're a free-market capitalist society where everybody is responsible for their own business and financial activities," Mr. Yardeni says. "But when things start to go wrong, we ... turn to the federal government."

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