Some thoughts on the "bailout"
The idea of the government buying the mortgages is not a bad one, it is just that the current proposal for how to go about it is a bad idea.
I think that the idea of purchasing a vast quantity of troubled mortgages is an excellent idea if done correctly (with the appropriate oversight) and could end up be highly profitable for the average tax payer.
After all these mortgages do have real value, they hold liens on real property which has real value.
The conditions I would like to see put on a deal like this would be:
1. Congressional review and oversight by the federal courts.
2. Only purchase the actual mortgages (liens on real property) not related derivative products. This may include spending some funds/ bearing some of the cost to help untangle the derivatives and packaging to uncover the mortgages tied up in them.
3. Purchase price not to exceed 50% of the loan amount or 50% of the property tax appraised value which ever is less.
4. US Bankruptcy courts are given the power to force adjudication of first mortgages during bankruptcy proceedings. This will allow homeowners to have the rate and terms of their loans adjusted by the court.
5. The executives of any company which wishes to sell their "toxic debt" to Uncle Sam, lose their severance packages, must repay any performance bonuses whether cash/stock received in the past 5 years. This should be retroactively applied to senior management who resigned or were terminated as a result of this crisis.
6. Mortgages cannot be sold back to private parties (i.e. the market) for less than 120% of the original purchase price, and should be vetted to ensure a competitive market price.
There may be more ideas but I think those six would go a long way in making this action a positive thing for both wall street and main street and should prevent the taxpayer from having to actually pay for this in any significant way as the profits from the good/repair/renegotiated mortgages could cover most of the cost of the ones that were beyond repair.
Comments on the thoughts above?
Any other thoughts/suggestions?