I'm shocked. SHOCKED
What else do you expect from a former Goldman Sachs (NYSE:GS) honcho who's presiding over an epic housing crash? Tough love? Free market economics? Please. It's all about keeping people happy, no matter what the cost.

Today, at Georgetown's law school, Treasury Secretary Hank Paulson made that plain. He followed up on yesterday's Wall Street bailout debacle by telling the world, "Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy."

You think, Hank?

Late to reality
He's right, of course. But what took him so long to figure this out?

Where was he when his Wall Street buddies at Goldman, Lehman Brothers (NYSE:LEH), Bear Stearns (NYSE:BSC), and Citigroup (NYSE:C) were raking in hundreds of millions in profit bonuses on the backs of trading in ever-more dangerous, ever-more-leveraged, black-box mortgage derivatives? Where was he when outfits like Impac Mortgage Holdings (NYSE:IMH) and Novastar Financial (NYSE:NFI) were building houses of cards from cheap Wall Street money that was sure to dry up as soon as the lousy loans stopped performing?

He surely wasn't calling for "orderly" markets (as he did yesterday) while the greatest housing bubble we've ever seen was inflating homebuyer egos and Wall Street paychecks. It's only now that the party is over that "order" must prevail. But in my opinion, "order" has come to mean "increasing."

Gotta be some way out of this other than the way we came ...
Now, Paulson -- like all the other politicians in Washington -- is scrambling for a way to fix the mess without any pain for anyone. Obviously, this is absurd. Billions of dollars in fictional equity were created via the housing Ponzi scheme, and these guys are dead set on preserving as much of it as possible, no matter what the cost.

"We must help as many able homeowners as possible stay in their homes," Paulson said. "Foreclosures are costly and painful for homeowners."

Yeah, well, too bad. That's what happens when you allow people who make $50,000 a year to buy $500,000 homes on gimmicky loans that apply a pretend interest rate up front.

Now, Paulson says lenders should work with home owners to refinance these overpriced houses before the interest rates reset and they can no longer afford them. Surely, he knows that the funding for those loans was provided only on the condition that they would someday reset at rates that make medieval usurers look kind.

That's sleazy, but that's what naive, deluded, or greedy buyers signed on for. Take away that reset, and you take away the incentive to lend the money in the first place. If Paulson thinks he's got a credit crunch now, just wait and see what happens in a world that dictates new loan terms as soon as it's politically expedient. Lending will get even tighter and home prices will drop like rocks.

Paulson tried to give a nod to the old-fashioned notion of personal responsibility by telling the kids at Georgetown, "When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators."

Ha! C'mon, Hank! Pull the other one. We know that's a bunch of bunk because it comes on the heels of the sleight-of-hand bailout plan you brokered and announced yesterday. OK, you didn't offer a bailout specifically aimed at the lenders or speculators, but you're doing anything you can to shore up the books at the wellspring of credit.

Foolish final thought
Answer us this, Mr. Paulson. How do you propose to encourage liquid lending markets while simultaneously relieving overstretched homebuyers of their contractual obligations to the (regrettably) lousy ARMs they took out in order to buy those overpriced McMansions?

Someone's gotta pay. And if it's not going to be the debtors leaving the homes, and if it's not going to be Hank's buddies on Wall Street, who does that leave?

Us. The responsible majority of Americans. Remember us? The people who didn't go out and do stupid things with our money?

Naw, of course not. We're not the ones making all the noise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.