The meltdown in the subprime mortgage market has caused a great deal of turmoil in the financial markets and hardship for individual homeowners and financial institutions. It prompted the Federal Reserve to take unprecedented actions to support the markets, one of which raises very difficult public policy issues.

I will return to the Federal Reserve, but first I will make some general comments. I believe that too much is being made of the current problems in the financial and real estate markets. This is probably due to three...