I agree – I see this credit impacting global credit markets for the foreseeable future. I just hope it doesn’t lead to a meltdown.

A washing out of the bad loans and bad borrowers is exactly what we need…and fast!

This “death of a thousands” cuts …put folks who should never have been given a loan, are now in foreclosure…sadly should let it happen…let their home hit the market after the bank gets if back…and allow someone with some sense turn it back into a performing asset.

The idea that converting a bunch of subprime borrowers to FHA borrowers is good for the economy is the same mentality and tactic the Japanese used…and it got them 20 years of stagnation.

S & L crisis …bad loans done by banks…banks go under…Uncle Sam takes over banks…liquidates remaining assets at 10 cents on the dollar…whole thing over from start to finish 4 years…cost to taxpayer 140 Billion….

The way we are headed on this one…bad loans done by banks, Fannie, Freddie, Wall Street firms,….a few go under…most get bailed out…Uncle Sam created bail out programs for everyone…one at a time…including borrowers who will eventually get foreclosed on anyway…whole thing drags on for 7-10 years ….cost to taxpayer $1 Trillion dollars…cost the economy of 10 years of stagflation…unknown.

RKB

You make a logical argument; however, in a market with falling prices banks would be foolish not to take the FHA insured loan even if it meant a significant write-down on their assets. The reason being is with the new FHA insured loan they could then value the assets on their balance sheet and would know the amount of capital necessary to keep in their reserves. The biggest problem right now is that banks do not know how much capital reserve is needed, so they continue to raise capital to cover the falling values of the assets on their balance sheets. With the new FHA insured loan they would now have a solid value that their assets could not fall below and would know how much capital is needed in reserves. By knowing this they would then be able to lend more money. This will cause more liquidity in credit markets which in turn directly affect mortgage markets and ultimately real estate markets.

Yes, the tax payer will ultimately pay a portion of the bill. However, as an economist I can tell you the alternative for our economy is far worse (i.e. letting markets wash out the bad loans). As a real estate investor this is where we are able to make our money one only has to look back to the saving and loan crisis of the 1980’s to see how you can make money on government bail outs of large financial intuitions!