Stuart Butler of the Heritage Foundation has weighed in. He argues that in general, for all the familiar reasons, it is unwise for government to intervene to bail out market actors who make poor decisions:
But there can be rare situations in which a wave of bad decisions in one sector has such dire consequences for the most basic operations of the economy that other sectors are threatened, jeopardizing the functioning of the entire economy. We are in such a situation. And in these rare cases another principle comes into play: Government institutions have a critical role in helping to assure the integrity of the market’s infrastructure, from the sanctity of contracts to the liquidity of the financial markets. When government fails to carry out this role in critical times, such as its failure to maintain liquidity after the stock market crash of 1929, the results can be catastrophic. As economist Milton Friedman explained, the failure of the Federal Reserve to maintain liquidity and functioning credit markets helped trigger and deepen the Great Depression.
He goes on to propose several principles for reform, including measures to avoid the creation of lots of new moral hazard, but don’t say specifically whether the Paulson Plan follows them.