Seven decades after the Great Depression, economists still are trying to calibrate the government's proper role. As Mr. Paulson is discovering, the answers aren't easy.
If policy makers embrace tough medicine, allowing banks to fail and mortgage defaults to soar, they risk an Indonesia-style downward spiral in which millions suffer.
If they intervene too aggressively to forestall the pain, they could end up with a different problem, a financial system that remains dysfunctional for years, as Japan's did when nonperforming loans were allowed to sit idly on bank balance sheets throughout the 1990s.
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