[simplelife]

What would happen if the gov took back all the backstop bailout money. And instead used it to pay off half the morgage of every morgae in US and refinincede the rest at lower rates?

I know this has problems, moral hazard and all, but gee look at what they are doing now. I know inflation potiential, but again look at what they are doing now. At least people will have homes, securtiy and and no riots during "inflation".

I feel this would be a big "sigh" of relief and could avoid a depression.

[forbin]

those government officails would not get their cushy jobs in the banks of course

who said the bail out was for you ?

just follow themoney .....


Forbin

[mos6507]

The houses are still grossly overvalued. Bailing out the homeowners only props up the overvalued housing market and continues to keep buyers priced out. Home values HAVE to come back down to historic norms.

[Arsenal]

The houses are still grossly overvalued. Bailing out the homeowners only props up the overvalued housing market and continues to keep buyers priced out. Home values HAVE to come back down to historic norms.

+1

A good old fashion recession is needed now and then to bring everything back down to reality. The problem is the government is interfering with that cycle and propping up bad assets which will only make it worse in the long run.

[simplelife]

I hear what you say, and basicly agree. But wouldnt it be at laeast better than what they are doing now. It would reverse forclosures, recapitlize the system and help everyone, intstead of just keeping dead corpse banks alive.

[centralstump]

The houses are still grossly overvalued. Bailing out the homeowners only props up the overvalued housing market and continues to keep buyers priced out. Home values HAVE to come back down to historic norms.

I agree. The problem isn't that houses prices are falling. Thats the solution to the problem.

Heres the problem: (anecdotally)

Someone very close to me is going to get her house for free.

She has made some really bad consumerism decisions. She has now has added a divorce onto it. Her finances are a wreck. The result is that she is in forclosure. (kinda)

Unfortunately, no one has legal standing to forclose.

Eight companies have owned her mortgage. Four of them are not licensed to operate in her home state. Three of them do not exist anymore. The last one must have had great lawyers because it has no further counterparty relationships on the deal. No provable legal losses or requirements means no legal standing.

The lawyer involved says she has 20 cases like this. 1 lawyer. Extrapolate that out to the whole country.

The problem is hidden risk. By hiding risk in bundles, housing prices are higher than if their risk was taken into account. From my little story, it is evident that these bundles carry their own risks.

Housing prices need to fall. Not because of some economic norm, but because the model used to price them is wrong.