Another Perspective To Financial Crisis

It may be that the focus has been on the wrong thing. Instead of buying up the toxic financial instruments, why not fund the cause -- in a new way -- of their toxicity thereby neutralizing them? That is the mortgages themselves. We could fund them in the usual sense, however, it would be much better to do something new in this particular case. Example: A couple, Mr. and Mrs. Jones, bought a house for $350,000. They made a $50,000 down payment, exhausting their entire savings in hopes their then status quo would only improve. They have paid on it for 2 years. The worth of the house has dropped and is now $220,000, which is less than they owe on their remaining mortgage. Their mortgage is a variable interest mortgage and now cost more than they had anticipated. Mrs. Jones has been laid off and Mr. Jones has had his hours cut back. They are having trouble paying all of their bills. They are thinking of walking away from the house. They are two months behind in their house payment. Solution with debt realignment: The Federal Reserve instructs the bank to rewrite their loan to the present worth of the house of $220,000 at a fixed 6% interest rate. But the original loan balance is $290,000. What happens to the other $70,000? We could divide the various $70,000 cases into 700 billion dollars and have the Treasury shore up the bank, or we could "realign" it, a bold measure -- done only this once by law. Here, the Federal Reserve, with strict oversight and procedural rules would allow the bank to take the mortgage debt and add it to its balance sheet as an asset. No funding from The Fed is done. Only the transfer of the debt from a debit to a credit is done, allowed this once by the Fed. No taxpayer money is involved. This is completely at odds with balance sheet accounting, I know. But we are in a financial war and we are losing. When at war you pull out all stops to win. This unorthodox means would stabilize the mortgage market, fund the banks, and detoxify the financial instruments behind the loans or derivatives of the loans. The banks, now with assets on their books can begin to loan, their stock goes up if they are publicly traded, the credit default swaps are neutralized. The market would respond accordingly. We would be back on track. There are approximately 5,000,000 (five million) homes in the US that are in foreclosure or delinquent. If we used the $70,000 in housing value drop (arbitrary on my part, I know, but I do not know the exact figure), we would arrive at a total figure needed of $350,000,000,000 (three-hundred fifty billion) which could be done by the Fed, but it is better to align the debt instead as outlined above. I hope this gives you some new ideas of how we might proceed. If the Fed spreads three-hundred and fifty billion to banks that restructure their loans it could be made as a direct loan or as equity in the bank. Debt realignment is better because no money is actually put up. A full analysis of my thinking on this can be found at www.debtreallignment.com Here, I outline my reasoning for realigning the entire l debt also, but because we have to solve this present crisis quickly, this would be a great first start to what I envision. Although, because of the present crisis this might be the perfect time to implement a bigger plan. Has analysis of funding the mortgages themselves, and assisting the lending institutions this way been done instead of the financial instruments? Samuel Margolies Las Vegas, Nevada