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NEXT STEPS….Clay Risen speculates on what’s next if the Paulson plan passes on Friday:

In a way, all the Paulson plan does is get us back to where we were a few weeks ago, when we were focused not on bank closures but housing foreclosures….But there’s a silver lining here: Maybe now policymakers will set aside their concerns about moral hazards and recognize the risk that unhealthy mortgages pose to the rest of the economy.

Well, I wouldn’t count on that happening anytime soon. Maybe next January, though.

As has often been the case these days, Columbia Business School Dean Glenn Hubbard, former chair of Bush’s Council of Economic Advisers, has been a voice of reason on this dilemma. In today’s Wall Street Journal, he co-wrote a piece with his Columbia colleague Chris Mayer proposing that “all residential mortgages on primary residences … be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years).” They argue that we should then place them with Fannie Mae and Freddie Mac. Such a move would directly help out homeowners, and in turn reassure credit markets worried about the wobbly mortgages underlying all those asset-backed securities we’ve heard so much about.

….This isn’t the final step, of course. If one looks at the economy as a heart-attack patient, the Paulson plan is the CPR. A refinancing plan would be the bypass surgery and recovery. Beyond that, just as a heart-attack survivor needs to make serious changes in diet and exercise, we need a thorough round of regulatory reform — including a restructuring of the regulatory system — to help make sure this doesn’t happen again and to prepare ourselves for the unknown tumult that a globalized financial infrastructure will bring.

I’d add some broader macroeconomic reforms to that list too, but obviously that’s going to take time and lots of political capital. But we can hope.

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