the citizen-viewer

There are really only two alternatives - a massive bail out or no massive bail out.

Trimmings, like oversight, better regulating, limits on golden parachutes, and mechanisms to allow for the chance that the taxpayers will get some or all their money back are good, but don't change the two basic choices. And Congress is putting at least some of these in the package - or so we have heard anyway.

Now there are legitimate questions about wether the bail out is a good idea and I am of two minds myself.

Aside from the details about oversight, etc. can you think of any more than the two choices - do it or not?

It's true that you can divide the world of possibilities into two choices if you want: do something or do nothing. And at first, Wall Street's employees in the White House and elsewhere adopted this attitude, saying, in effect, to any criticism of the terms of the Paulson plan: "So, you want a financial collapse?" as if there couldn't be other variations.
But really, very few are arguing that we should do nothing. So it makes sense to divide the real world of choices into smaller chunks.
Now the resistance to Paulson's plan is so overwhelming that they are starting to crack, but the danger is far from over.

But what other alternatives are you suggesting.

The deal that collapsed (at least temporarily) Thursday had a $350 billion now and an additional $350 billion subject to a later vote.

You could further segment the bail out into many more smaller payments spread out over more time. This might limit the amount put out, but may also fail to slve the crisis.

There are many different possible details but all the plans I have heard boil down to either a massive bail out (all at once or in stages) with various cavets or do nothing and let the markets sort it out, which they will do eventually.

As I have said, I can see the virtues of letting the market work this out or massive government intervention. I reluctantly favor the bail out, but a strong argument to do nothing could change my mind. And I am open to some other plan as well.

OK, here's an alternative. Bear in mind, the c-v is not a finance expert, just a reglar ol c-v.

The 'bad debt' at the heart of this problem is mortgages that people can't make payments on, in tandem with declining housing prices which makes foreclosure a disastrous deal for the lender--not to mention a personal disaster for the borrowers.

The solution doesn't have to be buying bad debt from the lenders/investors who made the error.

We could take the same money (let's say $700B) and use it to turn the bad debt into good debt.

Instead of us citizen-viewers buying the banks out of their problem while leaving desperate homeowners to face foreclosure, we could go to the original problem and use the money to help them -- that is, us! -- pay our mortgages.

First we set up the assistance pool so the markets can see money's coming. Then we have a massive assessment of the quality of these mortgages (big job, yes), and cut deals with lenders. Better deals (closer to original mortgage terms) for those who wrote responsible policies. Worse deals, or no deals for those who used deceptive practices, for ex.

Then we help the homeowners pay, under their new terms. Lenders that refuse to participate can go ahead and collapse. If they collapse even with the deal, we buy them lock stock and barrel and renegotiate terms with our fellow citizen-viewers en masse.

The key difference is this: let's put the money into the system in the place that keeps people from becoming homeless.

And did I mention: It's our money.

Who gets help re-writing their mortgage terms? Everyone? If only some, then what are the criterea?

I borrowed money at 10.5% in mid-80's and have mostly paid off my mortgage, do I get repaid for the higher interest I have already paid?

Evaluating all the mortgages (and you would have to evaluate all the mortgages so that the markets would know what all the hidden risks are) would take so long there would no longer be a need for a bail out.

To evaluate each mortgage you would have to get the financials for each person who borrowed and evaluate this against their mortgage and other debts. And through in their job security into the mix as well.

Just to set up the Federal Department of Mortgage Review and staff it would take a year or more. The actual reviews would take a lot longer.

By then the banks and other financials that can survive without a bail out will be around and the others will have failed.

If there is a real crisis we can't wait that long; if we can wait that long then there isn't a crisis, just a routine market correction.

Hmm, maybe there could just be a formula. For ex, in year one we (the federal govt) would start to pay for 20% of the interest portion of every mortgage payment on a primary residence. So you would see your payment drop by that amount.
Then 15% in year two, etc. Or whatever numbers work. Thus reducing the number of foreclosures dramatically and stabilizing the system. This would be offered lender by lender -- those lenders that accept would have to agree to certain oversight measures -- harder to foreclose, limited executive pay, etc.

That is an intersting approach. Seriously.

I am not sure I like it, but it is clever.

As a quibble, if the government pays 20% of the interest in year 1, your payments won't drop 20%. There is still principal to pay, escrowed insurance and taxes and maybe PMI.

If I buy a $1,000,000 house will the government pay 20% of my mortgage?

Right, your payment would drop by 20% (for ex) of the interest portion. This helps those who need it the most -- those who got freaky mortgages in the last few years, and especially those with balloon mortgages and out-of-control ARMs. There could be a sliding scale with less help for larger mortgages tailing off to zero percent at $1M or $2M.
But the participating lenders should meet us halfway, or at least part way, with rate reductions and/or other concessions.

Another thing to consider is the cost.

The $700 billion figure that is normally mentioned would end up being the cost only if all the mortgage assets that the government bought turned out to be worth nothing, i.e. everyone defaults and the houses can't be sold.

The true cost of the bail out will be considerably less and in theory could actually turna profit - if the discounted purchased assets turned out better than anticipated, i.e. there is less default and/or the housing market improves a lot.

The interest support payments on the other hand are gone and there would be no recouping them.

I idea I had (if we don't do a bail out) was have the government buy people out of their homes if they can't afford the payments. They would get back any principal paid (down payments and the principal portion of their month payments). They would get this amount even if the house had declined enough that they had negative equity. They could then take this money and buy a house they could afford or put the money aside and rent. The government would now own the house and could resell it when the market improves, renting it in the mean time.

There would probably be a cap on the amount of negative equity the government would absorb per house.