Others, like market strategist Edward Yardeni, say the Fed—which has acted quickly to cut rates—is still in the best position to stem the housing market's decline. And while he's pleased with the central bank's moves to reduce the federal funds rate from 5.25 to 3 percent so far, Yardeni says rates need to go even lower. "A 2 percent Fed funds rate could go a long way to stabilizing home prices," he says.
But in an election year, it would be naive to expect Congress to twiddle its thumbs as Americans lose their homes by the hundreds of thousands. Alex Pollock of the American Enterprise Institute is "virtually certain" that lawmakers will act—it's only a question of what they will do. And to ensure that government intervention is effective, Pollock suggests that policymakers study the lessons of the HOLC.
Ultimately, it's a confidence game. Overexuberance on Wall Street and, yes, Main Street got the country into the mess as M.B.A.'s and everyday folks forgot the adage that what goes up must come down. But if the markets and Washington can work quickly enough, the damage to the economy might just be stanched in time.