This may or may not shock you, butI will say Hillary Clinton is trying to arrange for direct payments to individuals, in the process of trying to negate the obligations they signed for, which is exactly the wrong answer.

The government didn't misrepresent itself to these individuals, nor did the Lenders. The government on the other hand misrepresented itself to the lenders, and that's the issue that needs redress.

Oh, yeah, why are we bailing out these mortgage companies that are giving their fired CEO's not just a "Golden Parachute" but a golden street to walk away on?

Please tell me now for I took the night off from panhandling to find answers to these burning questions. Thanks in Advance.

The comparisons to 1929 and the great depression should stop. The economy is very different and the investor class very different. I don't see how these comparisons help us too much.

So the balance to be struck is one of punishing the irresponsible, preventing more irresponsibility, and saving the economy. I don't see how we can accomplish 100% of each of these goals so we better get to some disappointment.

In the mean time the government could look to oil royalties, timber receipts, federal land sales, and whatever else they can do to generate cash besides raising taxes. Instead of lowering taxes perhaps the government could relax regulations on business, allow drilling to lower oil prices (talk about a stimulus), and reduce spending overseas. There are ways to help the economy without damaging the dollar.

So if we are going to bail out the financial industry in a way that doesn't create a Resolution Trust to maximize assets from the borrower, then the borrower is benefiting from the bailout as well. They should get money too? Sheeesh.

So its always the buyers fault? No one scammed them or used smoke and mirrors to convey the comfort of credibility?

I still classify that as being foolish.

Even when it's the government using smoke and mirrors?

That said, it makes me very, very, very, very nervous to see the USG owning so many formerly private assets.

Any idea how much land the Federal Government owns?

I agree with all of that. I think the best solution is: Let them fail. The sooner the better. Have the USG buy up banks out of bankruptcy. You're still going to need to cram down the mortgages, unless you want (a) the USG to become a mass landlord to the middle class or (b) dump the properties onto the market, killing home values, or (c) simply accepting non-payment without foreclosure.

The problem is this. There is no way to protect our home values. I only paid as much as I could afford, but my home value is down and will continue to decline, my taxes are high and likely to increase. It sucks.

In the long-run, if the USG gets equity in return for its capital infusions and if they carefully manage the mortgage write-downs, we'll do okay on all of this. But I just don't see how to really punish the irresponsible here without the rest of us suffering as a result. We may be in a cut off your nose to spite your face situation.

That said, it makes me very, very, very, very nervous to see the USG owning so many formerly private assets. Even if the goal is ultimately to re-privatize them, you can imagine all sort of corruption and shenanigans coming out of that process.

The other elephant in the room, though, is how you prevent this in the future....

So its always the buyers fault? No one scammed them or used smoke and mirrors to convey the comfort of credibility?

I still classify that as being foolish.

While I agree we shouldn't bail anyone out, your arrogance is downright disturbing in regards to the common people.

Look, either your an adult and you act like one. That means you take responsibility for your screw ups. Or you are not and you need to move back into your parents basement and do what they tell you to do until you finally decide to grow up. Pretty simple really.

And no, you can't move into my basement.

While I agree we shouldn't bail anyone out, your arrogance is downright disturbing in regards to the common people.

I don't know what Verdon is so upset about here. All Clinton is talking about is a law that allows bankruptcy courts to cram down mortgages. This punishes the bank and costs the public nothing.

And what does that do to the price of houses for people who aren't in trouble with their mortgages? What are the wider market effects? If it lowers the prices of other houses in the market it is lowering the price of my house, i.e. an asset I own. Or to put it more simply it is really no different than taking the equity in my house and transfering it to other homeowners who made bad decisions.

In other words, while it sucks to bait the moral hazard involved in bailing them out, it would suck worse to let them simply take the pain, since it comes back and bites everyone in the ass.

Yes, it would be painful, but this solution doesn't spare any pain, it merely spreads it around more evenly. It is unfair and makes people more likely to engage in foolish behavior than less. So it is bad policy on a number of levels. I doubt it would suck worse for the people who didn't behave foolishly.

Don't call me Barney. I have been perfectly polite to you. You can return the favor.

Christ, I don't even know why or how that happened. Honest, call it a Homer Simpson moment, "Oooh look something shiney....what was I writing....?". I've changed that part of the post.

I agree with your point about ideally punishing the irresponsible and not rewarding their behavior. I just don't understand what you are proposing. Do you think you could simply state it without making fun of my name?

I'm in favor of doing as little as possible upto doing nothing. Trying to prevent a market correction is likely going to just put off the pain and possibly make it worse. We saw something similar in 1929.

Not long after the market crashed to 199 from its 381 high at the end of the summer of 1929, President Herbert Hoover turned on short sellers. Like our SEC, he demanded a curb on short sales. "Bear raids" or "bear parties" were to be stopped; the blame for the crash all belonged to "certain gentlemen."

Then, as now, there was a lengthy discourse on the difference between "normal" short sales and "naked" ones. New York Stock Exchange President Richard Whitney argued that curtailing such sales postponed unavoidable pain -- or even made it greater.

It was wrong, he said, to vilify shorts. "Such a contract to deliver something in the future which a person does not own is common to many types of business," Whitney carefully spelled out in layman's language. "When a builder contracts to build a skyscraper he is literally short of every bit of material." Yet the anti-short and anti-Street mood grew. In a spirit every bit as zealous as Sen. McCain, lawmakers assigned attorney Ferdinand Pecora to lead a commission hunting for wrongdoing on Wall Street.
--Amity Shlaes
Ms. Shlaes, a senior fellow at the Council on Foreign Relations, is author of "The Forgotten Man: A New History of the Great Depression" (HarperCollins, 2007). (Link)

There is more in that article as well. For example,

Such an office can shorten a crisis -- the Resolution Trust Corporation, created to deal with the 1980s Savings and Loan debacle did.

There is one difference though, the RTC took over loans from failed S&Ls and sorted the wheat from the chaffe. The proposed bailout mechanism today will go around to still operating banks and buy their chaffe and let them keep the wheat.

From a moral hazard perspective this is a potential disaster. It allows good risks and their profits to remain private, but makes bad risks and their losses public. Here is the analogy.

We go to Las Vegas. I have a bank roll of $2000. You tell me, "Steve I'll cover your losses and you keep your winnings." What happens? I leave with at least $2000 and you are out who knows how much. Sound like a good plan? Good policy?

If you support a bailout, then how should it be accomplished in way that manages to punish irresponsible behavior while still preventing a meltdown.

If there is going to be a bailout I want some sort of super-majority clause in there so that the next bailout is going to be damn hard to come by. Something like 75% of both houses of Congress and the President signing off on it. Hopefully that would send a signal not to get too giddy with the current bailout and to keep things in perspective. And I'd like to see it like the RTC where they take over all the loans and sell them all off vs. taking just the crap.

I don't know what Verdon is so upset about here. All Clinton is talking about is a law that allows bankruptcy courts to cram down mortgages. This punishes the bank and costs the public nothing.