but it’s probable that there is nothing that can be done abut the housing bubble, other than letting it pop. We can mitigate some of its effects, but the market is never wrong.

At the same time, a change in accounting rules would greatly help against the current problem of mis-pricing of mortgages in that market.

it’s excluded from that or if it’s part of the mitigation. It’s not even clear if it makes sense to begin with.

It was a needless thing to present last night, I think.

The housing market problem:

Easy mortgages inflated prices (not values) beyond what they could sustain if the easy mortgages went away. ACORN and anti-redlining legislation made it worse.

Mark-to-market accounting rules forced lending institutions to mark down the value of those mortgages they held, to below their actual financial value. This put pressure on them to sell those mortgages, driving the SECURITY PRICES (not values) down further. As you see, a downward spiral was created.

Less money became available for business and mortgage lending, hurting both the economy and housing prices. This made more homeowners less able to pay their mortgages. Downward spiral.

McCain’s suggestion might work to stop the spirals. In fact, I thought that was part of the original bailout plan, but maybe it’s a refinement on it.

The primary problem with Fannie and Freddie was that Democrats ran them into the ground in order to further their political gains. If their successors can be stabilized and put back into the private sector, they should be OK, and McCain’s idea not too bad (the devil’s in the details, which I haven’t seen).

I think it could indeed cover some of such people, but I think it would exclude those who applied fraudulently (did not have the resources to pay for the mortgage they received) and it’s restricted to one residence per family. It would serve a worthy purpose if it stops the downward spiral before it overshoots.

I don’t understand your point b. Increased value would only help if you wanted to sell. Point a is far from unusual, especially in good times. Most people who find themselves in trouble with this weren’t unethical or immoral, but they did have bad timing. Should they be protected from their own bad judgement? Individually, no. But when there are enough of them to adversely affect the rest of us, it behooves us to consider helping them and helping ourselves in the process.

That’s not to say I couldn’t come up with a better plan. Such as modifying the mark-to-market regulation.

we are told, is that lenders are going overboard the other way. They won’t loan at all or are loaning only to gold-plated borrowers, which they no longer think exist.

That makes sales impossible, adding to the downward spiral, forcing foreclosures rather than even distressed sales.

I agree with you that the recipients of our largess should be required to pay a price–that’s a big part of what is wrong with this proposal as stated. Lower payment can be arranged without reducing the principal beyond what the current lender writes down as a loss on the sale of the mortgage. That’s the advantage of a government lender–the term and interest rate can be adjusted more or less at will. There should be no guarantee against eventual foreclosure, though.

Of course the people don’t deserve it, but something may need to be done for our benefit.