The best example for simple folks is ..

imagine that the government started to circulate counterfeit $20 bills into the economy .. years go by .. one day the news comes out that there are billions in counterfeit $20 bills in circulation. Who will take your $20 bills ?
.. Now in our current situation, instead of $20 bills, it’s securities made up of some number of bad mortgages made at the beckoning of the federal government.

But what I can’t understand .. is why the federal government should get an equity stake ?

The federal government orchestrated this screw up, they should just make restitution. Until that happens, there won’t be the proper level of outrage with the parties that let this go on. The whole “bailout” meme is merely a CYA exercise by the same politicians that let/made this happen in the first place.

http://centristnetblog.com/daily-news/fdic-moves-obama-claims-credit/

FDIC Moves for Authority to Increase 100K Cap to 250K – Obama Claims Credit

Obama Claims Credit for FDIC Idea

Early this morning Barack Obama issued a statement on the failed bailout package which, for the first time since the crisis began, included a specific policy proposal – an increase in the Federal Deposit Insurance Corporation’s (FDIC) coverage limit from 100,000 to 250,000.00. Democratic surrogates quickly appeared on across the cable news dials (such as Democratic House Whip Jim Clyburn on CNN) praising Obama’s proposal and leadership in proposing this bold FDIC move. Predictably, the internet mainstream media outlets (ABC, CNN, AP) quickly seconded Obama’s FDIC proposal and praised his move as helpful to revive yesterday’s defeated bailout package. Obama’s speeches today underscored the importance of the FDIC move, stating that it would “help restore public confidence in our financial system.”

An objective report, unlike the three linked above (ABC, CNN, AP) about Obama’s new FDIC proposal, cannot exclude the fact that the House GOP negotiator Roy Blunt attempted to insert the FDIC coverage hike into the compromise agreement over the weekend, and the Democratic negotiators refused. As Obama’s campaign has stated many times and Obama himself declared Sunday on Face the Nation, for “two weeks I was on the phone everyday with (Treasury) Secretary (Henry) Paulson and the congressional leaders making sure that the principles that have been ultimately adopted were incorporated into the bill” and that he was “involved in shaping” many of the bailout’s provisions.

As Obama claimed deep involvement in every day of negotiations on the bailout, it is inexplicable why Obama did not encourage Democrats to accept the FDIC cap increase proposal from GOP House negotiator Blunt. This is especially so as this morning Obama believes that the FDIC move would “boost small businesses, make our banking system more secure” and restore confidence. Furthermore, as many House conservatives were pushing for this FDIC provision, the bill may have passed yesterday if this provision had been allowed in by the Democratic negotiators.

A reverse-Kerry move may be afoot here, albeit unreported by the mainstream media and unlikely to ever be reported: Obama and the Democrats were against the FDIC coverage hike before they were for it. It has become clear in the last two weeks that the McCain campaign simply cannot compete against the Obama campaign’s shaping of the media narrative over the economic crisis, notwithstanding the difference between Obama’s claims and the reality of the situation.

Obama’s stark reversal on the FDIC cap issue amazingly won today’s news cycle by proposing an idea that he and the congressional Democrats rejected just 72 hours ago. Whether the American public notices this gigantic flip flop on the FDIC by Obama remains to be seen. Regardless, objectively speaking, Obama’s deft handling of the media during the economic crisis and McCain’s continued missteps and inability to capitalize on Obama’s mistakes demonstrates a political competency gap that may ensure Obama’s election come November 4.

Everyone is saying that 80% of the mortgages are valuable so why not have the banks just sell them for whatever they can get? Won’t this settle the market by bottoming out house prices? And once that happens, home-seekers will start buying again.

Is it just too expensive a proposition? I don’t know I’m asking.

and if it gives americans more confidence in the US banking system, lets do it.