Bailout's Tricky Balancing Act: How Much Is Too Much?

The Washington Post reports:

Under both the Bush administration's proposal and many of the variations finding favor among Democrats, the government would buy up to $700 billion in shaky assets now on the books of financial companies. As the government does so, it will be forced to grapple with the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth?

The very reason for the financial crisis of the past 14 months is that no one knows for sure. Wall Street created securities so complex that their value can swing wildly depending on what happens to the overall housing market. For example, a particular type of mortgage-backed security might offer a giant payout if home prices only drop another 10 percent, but be worthless if they drop another 15 percent.

Time to separate housing from state.