What happens to MBS's when the mortgages they are based on are paid off?  They increase in value to what they were originally supposed to be right?  So if the people in foreclosure or close to it are allowed to refinance their loans that pays off the bad loan that they currently have and sets up a new loan that is affordable to them which guarantees an income stream to the bank (less than they wanted but it's still there).  Sounds like it fixes the problem of the illiquid mbs's to me.

And why did the people walk away?  Because they couldn't afford the mortgage when the rate reset.  If the banks refinanced the loans the people could have gotten loans that they could afford, like I said the terms of the loans would have to be extended a good bit but it could be worked out if the banks really wanted a solution to the problem.  As for the pre-payment penalties the banks doing the refinancing could either waive those or roll them into the new loan.  There is nothing here that was unworkable if the banks would just suck it up and work with people rather than expecting the government to come around and bail them out.  The banks have the power to resolve this situation themselves they are just unwilling to do it because they would rather uncle sam just cut them a check.

Now keep in mind I'm not saying that all the investors here will recoup all their money or turn a profit, they are still going to take a loss but that is the risk they assumed when they invested in these mbs's in the first place.  Getting some of the money back is a much better situation than not getting anything.

You are right - it is a very different situation.  Just as it is a very different situation from the Great Depression (which was world wide).  But has that stopped the Idiots in DC from saying that?  or the lap dogs in the media from repeating it?

3 - Retirement is still 65 (and rising).

I think el-duderino has an interesting idea. Why not simply find a way to let homeowners pay off what they owe rather than lose it all? And for those who did screw up with this lose some of the money? I mean, like he said, they took a risk looking for more money and like people at the horse track some win some lose.

I just personally don't like the idea of people buying a ton of cool stuff on credit cards and then expecting someone else to pay the bill for them. (this is just an example).

This will be a worldwide downturn.... We import much more than we export. You have noticed how many foreign central banks have pumped liquidity into their economies recently have you not? Its gonna be tough. It looks like it may take a couple of years to get rid of the excess housing inventory so we will see what happens from there. I generally take my cues from the bigwigs in the investing world. Most figure the economy to be rather flat for quite a long time after the housing market recovers.

Well, we all know that the 83 amendments arent enough.

Yes it will be.  But not to hear the rest of the world say so.  Still, my point is that this is different.  It is not the same, nor is it in any way like the 30s.  But dont tell that to the sheeple.  We are all doomed.

Never said the situation was the same, just that I heard "the sky is falling" in 87 too. 

This is much worse than what was happening in 87. The problem is that one party or the other is always saying the sky is falling during election season so the public really does know what to think sometimes. The derivatives market is the difference between 87 and now so if you really want to understand what is going on do some research not only on mbs's but also on CDS's Credit Default Swaps.

No, you are 100% right. But we are now facing the dilemma of:

- Making these people pay for their stupid actions, but wreak the economy long-term

- Bailing these people out, and allow everybody else to continue have a potentially fulfilling life

I.. initially disagreed with the bailouts of company, but then I've read about the credit situation in the financial sectors, and it's really, really, frightening. We just cannot have a efficient economy running with those credit situation. If nothing is done, it's not gonna be the stupid people contracting a lot of debt who will be affected, it's gonna be the good manager who simply needs 300K$ to buy new machinery and build a new factory.