The big event of this weekend was in the New York Times and entitled: A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered.

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted… (Feb/23/02)

Finding a solution to this unprecedented crisis is needed… but let’s bear in mind that any intervention will come down to making debts to pay debts…. the problem is just delayed while making the outcome M-U-C-H worse… In real economics, debts that cannot be paid are destroyed.