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ass end up:
The real victims of the housing bubble are ordinary folks who bought a home they could afford to live in, rather than invest in, anytime between, say, 1998 and 2007, and perhaps an unknown number of suckers who were outright defrauded by lending agencies. The later they bought, the worse they've been screwed. Paulson's bailout does nothing for them. The Democrats' initial counter-proposals have offered little more than that.
Another way of bailing out Wall Street would be to issue mortgage relief so taxpayers were helping other taxpayers afford their monthly payments. Presumably the same amount of relief as Paulson's bailout could be issued out over a longer horizon, reducing the annual pricetag of the intervention and charging more of it to those holding the securities by restructuring the debt, replacing ARMs with fixed rates, obstructing foreclosures, etc.. The advantages seem obvious: it would shore up housing prices for the victims, which would suspend the ongoing real estate collapse, ensure some return on mortgage backed securities, and help whoever the means testing and occupancy requirements are designed to help to stay in their homes, build their equity, and leave only the most ludicrous lender bets to burn in the flames. If state socialism is the only solution, like the administration is suddenly insisting, it might as well keep a roof over peoples' heads.
The plan thus far works in entirely the opposite fashion. It rescues the most ludicrous Wall Street bets from the flames and leaves the home values to burn through the next half of the asset bubble. While Dodd's
1:1 equity swap would cover taxpayer ass, he's starting out by accepting the principle that Wall Street must be rescued first, rather than home owners. This tepid counter proposal doesn't leave him with much of a bargaining position when it inevitably gets watered down.
Either way you screw those who stayed liquid in order to take advantage of the unprecedented period of creative destruction that would surely follow the utter absurdity of the past decade and would rise from the ashes to become our new, wiser rulers in however many generations it would take for something of value to rise out of said ashes. I weep for them, whoever they are.