On the surface it seems that this would help unfortunate American families from losing where they live. But is it? There are many real estate investment schemes which IMHO are modified Ponzie schemes. One basically work like this:

Buy an old house, splash some paint on it and flip it.

Another one works like this:

Buy a property, hire a property manager, and rent the property. Use the equity to buy more property.

The problem with both these schemes is they are based on a boom housing market. If the market keeps going up, you can make big money. However, if the market hiccups, you are stuck with unsalable properties and ongoing expenses. In the second scheme you are constantly up to your eyeballs in debt since you constantly reinvest equity as you get it. Like a Ponzie scheme, if you are in at the inevitable end crash, you lose big time.

Why should anyone stupid enough to invest in such a scheme be bailed out? Are there lucky ones in these schemes? Of course, a Ponzie scheme wouldn't work if the first level lost money.

Your question should have read, "Should O/O (Owner Occupied) Foreclosures be Bailed Out?" Investor property should definitely not be bailed out; but why shouldn't the same money system that is stealing the house from under families be used to bail them out?

Is it a government of the people or a government of the banks?

right now, it is a govt of the banks.

If we're going to bail out people who bought homes' they couldn't afford, doesn't it make equal sense to help out people who were wise enough to say hey...these prices are absurd, and I can't afford them; I think I'll keep renting? After all in both instances we have a finacial loss, the loss from a foreclosure for those who bought vrs. the money spent in rent by those who were wise enough not to buy.

You seem to be suggesting people who were either too greedy or financially inept to understand that when you borrow the full price of a home, (with an interest rate set at the lowest levels ever seen, and a rate that has to go up when it's reset) that it might lead to trouble should be bailed out because, actually I'm not sure why you think they should be. Because they're inept? Because they lost money. I do realize there were predatory lending practices in some cases, and where that can be proven then perhaps victim restitution would be viable.

Personally I know a couple of people who are finding themselves in trouble vis-a-vis their homes, and in both cases these are people who were specualting and/or living beyond their means. I'm also aware that banks hate foreclosures as in many cases what they end up selling the property for is less then the loan value.

I guess if we're going to start bailing people out for making bad finacial decisions I've got a bit of Worldcom stock I'd like to be reimbursed for.

It was ranger's question, I just said that it should be directed at owner occupied; at least those are truly families losing their homes versus real estate speculators who would also benefit from tax relief for renters - cuz then maybe they could rent all those condos they got stuck with when the bubble popped.

Big banks set up income tax and big interest on home loans and then used one evil to justify the other. My question would be: Should we be continuing all this money expansion that is driving up the cost of homes and renting?

No. No, of course O/O foreclosures shouldn't be bailed out. The average earner cannot afford the average home, and an adjustment is due - either we all need to make more money (runaway inflation, never good) or houses need to be cheaper. This hurts the people who made bad lending and borrowing decisions. They all have my sympathy, but the job of the state is NOT to protect everyone from the consequences of bad decision making. That's what Greenspan did that got us into this mess. This mess was all foreseeable (I saw it and I'm no genius), and now we're all stuck with it. There is no fixing it by any pie in the sky, well-why-don't-we-just-print-m­ore-money fantasy.

My son has asked me, when I have explanied that a given toy is too expensive, "why don't we just get more money?" It's a cute question from a six year old, but grown ups and economists should know better.

1) Moral hazard needs to be understood. Every person from the real estate broker up to wall street took commissions and benefits from the easy money.. and now, when the market turns, they want other people to insulate them from the effects of bankruptcy? Nope, not on my dime. Moral hazard refers to the fact that continuous Fed bailouts will only result in Wall Street being MORE speculative and risk-happy, not more conservative! They won't change unless they are forced to change.

Let 'em rot. I hope they all lose their jobs so that these stupid bubbles stop happening. I refuse to pay for someone else's Town Car rides and porterhouse steak lunches.

Remember the way Wall Street sold these products? They described financial engineering as a way to take risk out of the equation. For many years, the Fed kept bailing out their stupid investments.. but did the stupidity stop? Nope, it actually became more brazen and gigantic! Job loss is never a positive, but in this case it brings needed sanity back to the financial world. It won't take days or even weeks for all of this to become clear - the largest $$ value month of the ARM reset isn't until next March - but it's inexorable.

2) Anyone who bought a home who couldn't afford it should be foreclosed on. Remember, the american dream is not the right to the trappings of success, it's the right to an OPPORTUNITY to succeed. The daily implementation steps taken in translating opportunity to success are wholly on the shoulders of the individual. I have no sympathy for greedy fools who took a risky bet on housing and lost - when was the last time we considered bailing out the Vegas gambling addicts?

The O/O home is a complicated picture. Should the government bail out a defaulted mortgage for a family making $25000 a year for there $250000 mortgage just because some bank was willing to lend it to them?

I say no, it was a stupid purchase.

Are there other people who took wise mortgages and then lost their jobs through no fault of their own? Yes, I people like should get some consideration.

I especially think that mortgage criteria need more regulation and the advertising that goes with them.

Does our Goverment enjoy the liquidity needed to bail out O/O forclosures? Its more than an academic question.

So now we've moved to the situation in which some people should be bailed out because of extraneous circumstances, i.e losing their job. This means some sort of "judge" will review each and every case to ascertain their "worthiness" of a bailout. Let's see, factory closed so that's a yes, told boss to go f*** himself, that's a no...hmmmm, told boss to go f*** himself upon learning that factory was closing in 90 days....that's worth, what 3 months of payments?

It's really not a complicated picture, people buy things..sometimes things they can't afford and lose them. Sometimes things they can afford, and then can't and lose them also. It is certainly not the role of government to bail people out of these situations, and quite honestly I suspect way beyond their ability as well. I am aware that people will get "hurt" in these circumstances, but it happens. I've been in the situation where I was building a home, and lost my job. This required a move from the area and a loss of everything I'd put into the property. I managed to survive without anyone helping me. There needs to be some common sense here, if you make 40K a year it shouldn't be too difficult to figure out you can't afford a $300,000 house. If someone tells you that you can lower your payments significantly by just paying the interest for 3 years, you got to know that at some point you've got to pay the rest of it. If you take out an "adjustable" rate mortgage when everyone is touting the lowest interest rates in 50 years, how much intelligence does it take to figure out it'll be adjusting up. I mean after all when the Fed is charging 1% do people think it's going down to 0.

This correction in needed, housing is less affordable now then ever, well almost ever...it's better then a year ago, but the only was for it to become affordable for more people is for prices to go down.