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Bailout Alternative

By Brian L. on Oct 02, 2008

A commentor in the http://meganmcardle.theatlantic.com/ blog ...

Here's my plan:

1. Take the $700B and divide evenly among all the primary residence mortgages in the US. The government has the information on the tax returns.

2. Let's say that it works out to $20,000 per mortgage. Take that and send it to the mortgage lenders in the appropriate monthly installments (if you have a $500 monthly payment, you get the next 40 months paid by Uncle Sam). That money will be tacked onto the end of your mortgage, but those payments will be made to the government.

3. Add on any little provisos you like, such as lenders have to make a good-faith effort to restructure the real problem mortgages; or, the money has to go to paying delinquent payments first, so that foreclosures are foreborne.

4. This should calm the stock market first, since the Fed is issuing a market-based "guarantee," and the credit markets second, since all the CDS's and other mortgage-backed securities derivatives should be back "in the money." Once they are, they can be unwound at a rational pace, and the winners can win, and the losers lose.

This plan would obviate the need for the previously-passed $300B mortgage assistance, so we're saving that money right off the top. It would certainly stimulate the economy, so we don't need to do that, either. It might even help the housing market, although it probably shouldn't.

Have at it.

Posted by Rich | September 30, 2008 9:04 AM

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