Again I maintain that what is important is for the government to get a hold of the mortgages because without clear title it can’t convert them into safer long term fixed rate ones.

Would you consider this a national security issue? How safe is America if our economy grinds to a halt?

On that basis, as FDR did with Agriculture, you could assert the power to fix the problem — without purchasing, taking ownership and possession, reworking them, reselling them, etc.

In an emergency the government should be allowed to do such drastic things. I’m sure it’s in the Constitution somewhere.

The amount of the derivatives out there is 68 trillion. If some institution made a bunch of bad debts they lose the store. And most of them made some very bad bets.

Why are they allowed to bet?

$68T is a lot to bet, especially if you borrowed it (leveraged yourself heavily). BTW, how do they know they bet bad if the mortgages aren’t valuated properly?

Why are they allowed? Cause they’re the Masters of the Universe. It’s their right as free Americans to do whatever stupid thing they want — despite Justice Scalia’s opinion they have no rights unless enumerated.

Why should bad bets be bailed out? Why indeed? All I’d like to see is saving the home owners & mortgages and little else.

I mean, those weren’t FDIC insured institutions were they?

Now times are tough, and the little people aren’t paying whichever party is holding the Package containing their mortgage, so the Holding Party, which has in the meantime gone out and spent or otherwise disposed of money it didn’t yet have, is embarrassed.

Consider this:

two black boxes, one has a good mortgage with a fixed rate and steady payments and the other has an ARM mortgage nearly in default

Which would you buy? How much would you pay? What if you offered low and the owner wouldn’t sell? What is each box worth?

Then, if you were a bank and saw all this, would you loan money to the owner of either black box based on it’s contents as collateral?

If banks don’t loan every business owning these black boxes which depends on a line of credit might as well lock up and go home.

Then the entire economy begins to slow to a halt.

Now, how do you fix it? How do you evaluate what’s in each box?
Does it make sense for the government to assume there’s some part that’s good and just average them out?

Why don’t the commercial businesses which deal in these things do that?

It’s a problem.

I suggest fixing mortgages and the discussion in this thread is how that might be attempted, considering those are nearly sealed boxes.

I heard bloomberg actually say we shouldn’t chase away the ceo’s by attaching their golden parachute because “we need the best and the brightest to help us get out of this thing”

Pay ‘em to succeed with the company’s success, not to succeed regardless of their work. Bloomberg is just reciting the NYC financial markets mantra that more money must flow through the market no matter what. It’s insane.

You have to unpack the securities.

Why should the government bear that cost and effort? Let the holders or some private firm they pay to do it.

the bank that makes loans so that people can buy homes – mortgages?

money markets don’t do that.

or am i just confused?

Oops, replied incorrectly above.

AFAIK money markets are like a checking account where you just hold quick cash, but it’s invested in very short-term bills, so it can make money and remain very liquid. Not secured by FDIC or anything (until now).

Then why $700B in the first place? Just because it’s enough to screw incoming Dems or because they want it to fight a war or what?

It seems the idea of putting a dollar on this plan is as worthless as trying to put a value on upside down mortgages.

“… there are trillions of dollars of securities based on mortgages out there …” — Ian Welsh

What do you mean “based on”?

It’s also clear how different the boom experiences were in different metro areas, so much so that holding to a single common haircut for all might really violate any notion of equitable treatment of borrowers (who presumably get the benefit of the cramdown somehow). And as you said, vintage matters here.

But it’s also clear that if this had to be done overnight to save the nation or something, a linear approximation of the departure of each MSA’s affordability line from the horizontal, starting at the year 2000, would give a pretty good approximation of a discount that would leave borrowers with less chance of winding up back underwater in a couple of years; the affordability trend in most places was quite stable until recently, and even where it wasn’t, like in CA, it tends to spend a lot of time around a level band.

For many places, this rule would result in something like Dodd’s 15 percent discount on a recent loan, while in others like the aforementioned CA especially, it would be about 40 to 50 percent for the most recent loans. (I eyeball the increase in affordability slope for much of the Bay area at close to 2, i.e. by 2006 which was the last data available, a median-priced house was selling for 10 times median income, where in 2000 a median house —not necessarily the exact kind of house, but remember, the nation is in peril— went for only about 5 times med. income.)

The result would allow for longer-term differences in the housing markets of places, which do seem to exist, while reflecting the liklihood that most of the “equity” built up in housing over the last few years is destined to vanish.

The affordability data are from Harvard center, “Additional table: Metropolitan Area House Price-Income Ratio, 1980-2006.” And I have graphs …

I see your point, but it sounds a lot like “let the free market work itself out.”

I like that alternative, myself, except when I’m scared shitless.