What's the most underdiscussed issue of this presidential campaign?

 Housing. Housing prices are off about 10 percent from their peak, and experts expect them to drop another 20 percent or so. Without policy changes, several million households will default on their mortgages over the next few years. Roughly 14 million homeowners will owe more than their houses are worth. Uncertainty about mortgage-backed securities will continue to whack at the foundations of the banking system.

 Who's to blame?

 Who's not to blame? The mortgage brokers were out of control. Regulators were asleep. Homebuyers thought they were entitled to Corian counters and a two-story great room. Everybody from Norwegian town elders to financial geniuses decided that house prices would always go up. This was an episode of mass idiocy.

 Why should the government do anything? Shouldn't people be held responsible for their stupidity and greed?

 Our economic system is based on the idea that people take responsibility for their own decisions. It would be ruinous if people felt free to take horrendous risks knowing that the government would bail them out if those decisions didn't pan out.

Nonetheless, individual responsibility is not absolute. As behavioral economists demonstrate every day, human beings are powerfully and unconsciously influenced by the ideas and assumptions that float around in the social ether. If the financial elites misprice risk and offer delicious loans to consumers, then many of those consumers will end up grabbing the loans, the just and the unjust alike. We should at least see if there's a way we can ease the pain those people are bound to suffer.

Besides, in case you haven't been watching the Fed lately, we're in the midst of a potentially disastrous financial crisis. People worry about moral hazard issues in normal times. But in times like these, they put those concerns on the back burner.

But shouldn't the market be allowed to work? If housing prices are bound to fall anyway, we might as well get them down to their natural level as quickly as possible.

That's the lesson of the Japanese financial crisis. People aren't going to buy houses if it seems that prices will continue their gradual fall for another several years. If people who made bad decisions are allowed to stay in homes they can't afford, then prudent people who made good decisions will lose opportunities to move up to nicer places.

All that's true, but bubbles can move both ways. Just as housing can get overpriced during a frenzy, it can get under-priced during a panic. It makes sense to try to find some circuit breakers so the housing market doesn't totally collapse. Moreover, there are social costs to mass foreclosures. People build up social capital in their neighborhoods, which they lose if forced to move out.

Well, if the government is going to intervene more in the housing market, what principles should we use to organize the response?

First, no bailout for the true greedheads: the speculators, the flippers, the people who bought second homes they couldn't afford. Help only those who can stay in their homes with a modest amount of aid. Don't succumb to lenders who want the government to buy up their bad paper. On the other hand, as Douglas Elmendorf of the Brookings Institution points out, it would be self-defeating to crack down on the so-called irresponsible lenders so harshly that you skew their incentives to lend in the future.

So what policy ideas are out there?

None are wholly satisfactory. On the Democratic side, Barack Obama and Chris Dodd are proposing federally backed loan guarantees. People in danger of defaulting could get new mortgages that reflected the new, lower value of their homes. Lenders would write off some value, but it would be better than nothing.

There are significant administrative problems with this idea, of which the sponsors are fully aware. How would you make sure only the worthy qualified for the guarantees? In a world of securitized ortgages, how do you track down the actual owners of the debt to renegotiate? Nonetheless, they think the plan would get us through the crisis.

John McCain's staffers are acutely aware of the problem, but are having trouble coming up with a response they think would work. One idea is to use the low-income housing tax credit to subsidize those who would otherwise default. The idea is sensible, but if the housing crisis provokes a campaign bidding war, the Democratic plans are bigger.

So I guess we're all bailout artists now?

We do seem to have reached some Bernanke-era consensus. In normal times, the free market works well. But in a crisis like this one, few are willing to sit back and let the market find its own equilibrium.