Stealing my money to back another person’s loss? Disgusting.

Example of the bailout plan:

John: Can I borrow some money Mary?

Mary: Sure. Here is a dollar. Pay me back tomorrow.

John: Time is up. Where is the money you owe me?

Mary: I can’t pay it back. Take it from somebody else!

John: What a great idea! I’ll rob someone else to pay your debt!

However, I think you’re missing something. If these mortgages were for sale, the prices that they’d sooner or later garner on the open market would reflect the market opinion of what they SHOULD and WILL be worth, not what the stated value is. So, there’d be no need for an investor to fear in purchasing YOURr mortgage simply because the price could go down, so long as the purchaser could make a reasonable estimate ands then buy at a price that seemed likely to lead to future profit.

Traders know how much of market value is based on emotion and the emotional component of financial opinion. In panicky times, no one wants to guess about how much downside there is to a given investment. If there’s a run on money markets and credit dries up and no loans can be made, there’s no telling how much the underlying value of the real estate represented could plunge. Ultimately, the value of all that real estate is pegged to what potential purchasers can afford to pay. If and when the market stabilizes, that value can be better pegged, probably at some sort of historical growth rate forward from the time when the bubble really started to grow, or at some multiple of the salaries of folks who might be able to afford the properties.

So suppose you own a house recently estimated at worth 350 k, and you owe $150 K on it. The value for an investor depends on how much the 350 figure falls, because as long as you keep your income and the house keeps oh lets say at least 40% of its old estimated worth, you’ll almost certainly keep paying.

At a guess, I’d say the larger issue with the mortgage packages is the packaging. Probably they need to be consolidated and re-packaged. No one wants to buy one of the current packages, because who knows what portion of the loans is really bad. The reason no one is buying is that no one knows what they should be worth as currently packaged.

And as real estate values go down, more and more of the recently-granted loans are more likely subject to default. If you took out a mortgage for $450 even with lets say $50k down on a house whose value is headed below 300k, what’s your incentive to keep paying on that loan if you have 29 years to go and don’t expect that house to see values above $400 k for 10 or 15 or 20 years now?