Rather than taking over and running banks, the FDIC should split each bank into two parts.

TO BE NOTED: From the WSJ:

"Banks Need Fewer Carrots and More Sticks

Insolvent institutions should be taken over by the FDIC.

By R. GLENN HUBBARD , HAL SCOTT and LUIGI ZINGALES

The results of bank stress tests -- expected tomorrow -- will no doubt prompt calls for further government guarantees and capital injections. But continuing to prop up the banks with government cash is a mistake. There is a better approach.

Getty Images

A well-capitalized banking sector is a necessary ingredient for effective intermediation and economic recovery. But today's system is not well-capitalized. How can we move in the right direction?

In a market economy, the government can create the right incentives by using a combination of carrots and sticks. Thus far, the government has only used carrots with the banks. One major carrot is the Troubled Asset Relief Program (TARP). The initial infusions were very generous -- the Treasury got back securities worth $78 billion less than the $254 billion it invested -- as the Congressional Oversight Panel pointed out recently. In addition, the FDIC's guarantee of short-term debt was worth $100 billion just for the original nine TARP-participating banks. And the mortgage-related asset guarantees offered to Citibank and Bank of America were worth tens of billions of dollars more.

A new round of expensive TARP injections -- by converting the government's preferred stock into equity -- may follow the release of the stress-test results. In addition, the Treasury's Public-Private Investment Program (PPIP) plans to subsidize the purchase of banks' "toxic assets" by hedge funds and other investors. We estimate that the government will spend $2 for every $1 the private sector will put in. Yet even with this large subsidy, PPIP's chance for success is low because of the substantial gulf between the bid and ask prices on the toxic assets, and the reluctance of investors to partner with the government.

Not only is the carrot approach not jump-starting lending, it is also angering the American people. It's hard to justify to taxpayers that we need to reward the same group of people who, rightly or wrongly, are perceived as responsible for the current situation.

It's time for government to use the stick, beginning with creditors. The first step should be an announcement that the FDIC guarantees of short-term debt, set to expire at the end of October, will not be renewed. Insolvent banks -- defined not by stress tests, but as those that cannot fund themselves in the private market -- will be taken over by the FDIC. Of course, this takeover plan must be clear and credible. Otherwise creditors will play "chicken" with the government, knowing that at the last minute the government will flinch and fail to remove the guarantees.

Despite the clarity of such an approach, the market might be skeptical for several reasons. First of all, the FDIC lacks the staff to oversee, let alone run, several large and complex banks which may become insolvent. Second, the FDIC's main approach so far, as with Washington Mutual and IndyMac, has been to restructure the banks for acquisition. The trouble with this plan is that it is unclear who will buy the largest banks in the near future. Finally, it is politically unappealing to have a government institution run a significant fraction of our banking sector. Waiving the specter of nationalization, the creditors may try to force the government to bail them out.

We believe these problems can largely be avoided by adopting a simple approach. Rather than taking over and running banks, the FDIC should split each bank into two parts. One part ("the bad bank") will assume all the residential and commercial real-estate loans and securitized mortgages as assets, and all the long-term debt as liabilities. In addition, "the bad bank" will obtain a loan from the "good bank." This loan is necessary because the long-term debt of the old bank is not likely to be sufficient to fund the assets of the bad bank. The good bank will have all the remaining assets, including derivative contracts and its loan to the bad bank. It will have all the insured deposits and the FDIC-guaranteed short-term debt as liabilities. Once the split is accomplished, the good bank can be cut loose from FDIC receivership.

On the one hand, this split separates the toxic assets, whose value is very uncertain, in an institution that has no insured or guaranteed liabilities and poses no systemic risk. The bad bank will be like a closed-end mutual fund and can be run as such. The good bank will be well-capitalized, and the value of its assets will be clear.

The losers in this reshuffling are the long-term debtholders who get stuck in the bad bank. For this reason, we propose that they be compensated by receiving all the equity of the good bank. The old shareholders will get the equity in the bad bank. (In any restructuring, bondholders should do better than equity.) And the FDIC minimizes its risk because it guarantees the deposits in the good bank.

In fact, long-term debtholders who have debt claims against the bad bank and equity claims against the good bank will be better off under this plan than if the bank were liquidated or continued to operate as one bank. If the bank were liquidated, bondholders would stand to lose almost all their investment. If the bank continues to operate with government subsidies, the benefit of the subsidies are shared by both debt and equity. Under our plan, the debtholders will get all of the equity in the "good bank" and therefore all the upside of its future performance.

One of the major objections to letting banks fail is the argument that they are not really insolvent; they are just facing a temporary dislocation in the marketplace. But if this observation were true, the bad bank would surge in value, and the old shareholders of the banks, who received the shares in the bad bank, would gain. If it is false, the bad bank would default and the old shareholders would receive nothing (as they should).

In order for this plan to work, legislation would need to take effect before the withdrawal of the FDIC guarantee in October, so that FDIC procedures for handling failed banks can be applied to bank-holding companies. FDIC Chairman Sheila Bair has called for such legislation. Most importantly, this plan won't impose any new cost on the taxpayer.

Bold stress tests and government intervention reflect President Obama's use of Franklin Delano Roosevelt as a model in dealing with the current crisis. But he got the wrong Roosevelt. He should instead follow the motto of Theodore Roosevelt: Speak softly and carry a big stick.

Mr. Hubbard, dean and professor of finance and economics at Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush. Mr. Scott is a professor of international financial systems at Harvard Law School. Mr. Zingales is professor of entrepreneurship and finance at the Chicago Booth School of Business."

Three economists chronicle the history of government policy during past recessions and explain what worked and what didn’t.

From the NY Times, an interesting resource:

How the Government Dealt With Past Recessions

Since the Great Depression, presidents have frequently experimented with Keynesian economics to combat recessions. Three economists chronicle the history of government policy during past recessions and explain what worked and what didn’t.

Sources: Bureau of Economic Analysis; the economists

Kevin Quealy, Gregory Roth and R.M. Schneiderman/The New York Times

"However, after the bubble, which peaked in 2005-06, expect a severe over-correction to the downside."

From EconomPic Data, another look as the Home Prices data:

"Case-Shiller Price Index (October)

For more information on what the Case Shiller Price Index is and why it may be an important measure, check out this old post.

The Case-Shiller Price Index (an adjustment to CPI) turned severly negative year over year, down 1.4% from last October as home prices, a global slowdown, and the reversal in energy prices severely impacted price levels.

Looking at the five year change in the Case-Shiller Index (the housing index, not the self created price index), we see home prices reverting back to a more "normal" 2% annualized level. However, after the bubble, which peaked in 2005-06, expect a severe over-correction to the downside.

Source: BLS / S&P"

The overshoot might explain why the Mayer/Hubbard figures for a bottom to the decline in housing prices might not work.

Taxpayers would no longer be on the line for subsidizing home loans.

The Washington Post on Fannie/Freddie:

"By Zachary A. Goldfarb

Washington Post Staff Writer
Monday, December 22, 2008; D01

Policymakers are looking to revamp the nation's home loan system next year after the collapse of U.S. housing and mortgage markets spurred the current economic crisis.

Under one possible approach, Fannie Mae and Freddie Mac, the federally run companies that control half of the nation's $11 trillion mortgage market, would disappear, leaving lending primarily to private banks( YES ). Taxpayers would no longer be on the line for subsidizing home loans( GOOD ). But analysts say it could become much harder to get a mortgage -- at least one with a relatively low interest rate and a 30-year term( AND ? ).

Under another approach, Fannie and Freddie would remain. They could continue as private companies, trying to strike the difficult balance between the demands of profit-seeking shareholders and those of policy-oriented lawmakers. They could also be turned into government agencies. In either of these cases, taxpayers would remain potentially exposed to trillions of dollars in losses( PLEASE NO ).

The debate comes after the nation endured a bruising effort to promote homeownership in the past decade. Fannie and Freddie provided hundreds of billions of dollars in loans to people with blemished credit records or other financial limitations, which led to huge losses and the government seizing the firms in September as the financial crisis escalated. The government agreed to cover as much as $200 billion in losses( TOO MUCH ).

Now policymakers are looking at ways to prevent a relapse while maintaining Fannie and Freddie's charge of supplying consistent funding for mortgages. Fannie, Freddie and government agencies are funding nearly all of the nation's home loans; private lenders have all but disappeared( CROWDING OUT ).

"If we want to divorce the federal government from the risks of the housing system, you would privatize it," said Howard Glaser, a housing consultant who has worked for Fannie and Freddie. "The cost of that is you never know if you'll have mortgage finance available. Case in point: today( NOT SURE OF THAT )."

Fannie and Freddie were chartered by Congress 40 years ago as private companies with a government mandate to buy mortgages from lenders, package them, guarantee them against default and sell them to investors around the world. As a result, borrowers in big cities or small towns could go to big banks or small thrifts and get a 30-year, fixed-rate loan at an affordable rate.

But risks always loomed. Investors assumed that the government backed Fannie and Freddie, even if they did not have such support officially( IMPLICIT GUARANTEE PROVED CORRECT ). As a result, the companies could borrow cheaply and grow big -- with as much outstanding debt as the U.S. government. But the housing crisis crippled the companies, prompting the Bush administration to take them over out of concern they'd severely damage the world financial system.

Some longtime supporters of Fannie and Freddie say they must change, but still see a need for the government to play a role. "The Fannie and Freddie model has to be approached and the private-public entanglement, I think, will be undone," Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in a recent interview. Frank said the reform of Fannie and Freddie is likely to include "some subsidy( THIS IS BETTER ) for enhanced affordability and increasing the flow of mortgages."

But there is little agreement about precisely how to restructure them. While Frank no longer thinks the hybrid model( THANKFULLY ) is viable, another influential lawmaker does. "The hybrid is the best( FOOLISH. ZERO LEARNING CURVE )," said Sen. Charles E. Schumer (D-N.Y.), who leads the Joint Economic Committee. "The hybrid nature should remain."

President-elect Barack Obama has said little on the topic. Obama's chief economic adviser, former Treasury secretary Lawrence Summers, has long been a critic of the risks posed by Fannie and Freddie. In a Washington Post opinion piece this past summer, Summers wrote that the government should use Fannie and Freddie to support the housing market during the crisis and that the government should then "divide their functions into government and private components, the latter of which would be sold off in multiple pieces( NO HYBRID HE SAID )."

One model gaining attention among some top policymakers would incorporate public and private elements, dividing Fannie and Freddie into separate components. One part of Fannie and Freddie's business involves buying mortgage bonds and other assets, holding them in a portfolio and trading them -- much like any other investment fund. This component would be privatized, with no government backing( FINE ).

A much bigger part involves the guarantee business, where Fannie and Freddie pool mortgages and guarantee timely payment of principal and interest. This area would receive explicit government backing( IF SO, IT SHOULD BE EXPLICIT ), possibly from the Treasury if it agrees to insure mortgages( CDSs ) in exchange for a fee.

Other options under discussion include turning the companies into public utilities, which would keep them highly regulated( THEY WOULD HAVE TO BE ), or cooperatives of large banks or of the Federal Home Loans Banks( FINE, IF PRIVATE ).

Some advocates of reducing or eliminating the government's role in the mortgage market argue that policymakers have erred in providing so much support to keeping mortgage rates low over the years -- not just through Fannie and Freddie but with tax breaks and accounting rules that made it easier for banks to own mortgage securities. Low interest rates, they argue, have artificially inflated housing prices and led too many people to buy homes with loans they cannot afford( I DON'T LIKE THE SUBSIDIES, BUT INDIVIDUAL HUMAN ACTIONS ARE RESPONSIBLE FOR BAD LOANS ).

"The problem with subsidizing mortgages is you're subsidizing people getting into debt. You're putting people into houses with no equity( THIS YOU SHOULDN'T DO )," said Arnold Kling, a former economist at both the Federal Reserve and Freddie Mac. "The goal should be getting people to own homes on a sound basis( TRUE )."

Kling would prefer that the government subsidize a down payment on a home, either through a tax-free savings account or another mechanism( I AGREE ).

Lawrence White, a professor of economics at New York University, argues that all the measures focused on the mortgage market have diverted capital from other important parts of the economy( TO SOME EXTENT THAT IS TRUE, BUT THAT'S UP TO INDIVIDUALS ).

"We invest more in residential structures and related things and less in factories and less in human capital," he said. "There are trade-offs. Investors have their choice between investing in a General Motors bond and a mortgage bond( TRUE )."

There are a number of risks associated with the private model. Anthony Sanders, a professor of finance at Arizona State University, argues that there's no guarantee that the private markets would do an adequate job of keeping the system functioning well. "Let's be honest: The commercial banks did not do a very good job since 2003" when they rushed into subprime loans, he said( BUT THEY ASSUMED IMPLICIT GOVERNMENT GUARANTEES ).

But Sanders also rejects the idea that Fannie and Freddie should be turned into a government agency, like the Federal Housing Administration. "If we load everything on the books of the federal government and there's no incentive to perform," he said, "we will see a lack of monitoring, we'll see underperformance( OK )."

In the past, the companies' powerful corps of lobbyists( YES ) could counter efforts to change the way they do business. Their lobbying activities stopped when the government took them over in September. Still, the companies themselves may weigh in.

Top executives at Fannie Mae and Freddie Mac have been assigned to study what the companies and mortgage market would look like if Fannie and Freddie were not what they are today, but they won't be making recommendations.

"I don't have a fixed view on this right now," said Fannie Mae chief executive Herbert M. Allison Jr., whom the government selected to lead the company. "I believe that the approach should be less about Fannie and Freddie and more about how to best meet the needs of the American public and promote responsible homeownership ( GOOD IDEA )."

Staff writer Lori Montgomery contributed to this report."

This report surprised me, given the supposed centrality of the Mayer/Hubbard plan in recent discussions, which would seem to necessitate a government role in the program.

"trying to prop up home prices is crazy when so much overbuilding has taken place and so many housing units are unoccupied"

Arnold Kling doesn't quite get this plan either:

"One prominent proposal comes from Glenn Hubbard and Christopher Mayer.

In support of their mortgage subsidy idea, Brad DeLong writes,

I am, however, gobsmacked to see Glenn Hubbard proposing it.

What has me gobsmacked is that DeLong, who usually has the good sense to dispute Hubbard, fails to do so in this case.

The Washington Post quotes me stating the obvious.

"The problem with subsidizing mortgages is you're subsidizing people getting into debt. You're putting people into houses with no equity," said Arnold Kling, a former economist at both the Federal Reserve and Freddie Mac. "The goal should be getting people to own homes on a sound basis."

Among the many problems with the Hubbard-Mayer idea is that trying to prop up home prices is crazy when so much overbuilding has taken place and so many housing units are unoccupied. We need another two or three years of record low housing construction to get rid of the overhang."

I still don't understand how Hubbard-Mayer arrived at their assumptions. Here's some extra information I found on their paper:

"House Prices Are Not Obviously “Too High” ( THAT I AGREE WITH )

Declining house prices are a key macroeconomic problem, driving up foreclosures, reducing household wealth and consumption, as well as bankrupting our financial institutions.

While fundamental factors clearly played a role in driving down house prices that were at excessive levels two years ago, we have argued in a recent paper that house prices have fallen at or below fundamental levels. Indeed, in most markets, house prices have already overshot the value of housing consistent with the average level of affordability in the past 20 years. ( I'M DUBIOUS )

Nonetheless, absent policy action, house prices are likely to continue falling( WHY, IF THEY"RE CORRECTLY VALUED? ). A key factor, of course, is the meltdown in mortgage markets that has substantially increased the spread between mortgage rates and long-term interest rates.

Until recently, the Treasury’s conservatorship of Fannie Mae and Freddie Mac had been associated with higher mortgage rates in a period of lower Treasury yields. Even with recent Federal Reserve purchases of GSE bonds, the difference between the 10-year Treasury bond and the 30-year conforming mortgage rate is still at about 2.8 percent, compared to a historical average of 1.6 percent. The weakening employment outlook adds to the likelihood of substantial additional house price declines. ( DEFLATION? )

We see little risk of inflating another housing bubble. Indexing the mortgage rate to U.S. Treasury yield provides exactly the mechanism to allow the economy to naturally correct. While the economy is contracting, low interest rates would spur housing activity—exactly as needed in an economic crisis. When economic activity improves, the U.S. Treasury yield and mortgage rates would rise. Improved economic conditions would help offset the negative effect of rising mortgage rates on house prices( OK ). This would provide for a “soft landing” for house prices relative to the forecast that house prices would fall another 12 to 18 percent or more in the next 18 months." ( MAYBE )

Here's why they believe that housing prices are at Fundamental Levels:

"I have made two calculations for comparison:
i. The first calculation shows how expensive house prices would be (relative to renting) if
we had a normally functioning mortgage market. In the last 20 years, 30‐year fixed rate
mortgages averaged 1.6% above the 10‐year treasury rate. With 10‐year Treasury rates
at about 4% today, this means that mortgage rates would normally be about 5.6%
today. Figure 1 reports this mortgage spread over the last 20 years.
ii. The second calculation shows how expensive house prices are based on actual mortgage
spreads today, which are about 2.4% above the 10‐year Treasury rate. As a comparison,
a 250,000 mortgage would have monthly payments of $1,435/month using a 5.6%
mortgage rate, but those monthly payments would rise to $1,580 using a 6.5%
mortgage rate, a 10% rise. This effect alone substantially reduces the demand for
housing, even without considering other fundamentals.
Table 1 at the back of this note reports the results of my analysis. It reports the ratio of the annual cost
of owning with the rental cost. The ratio represents how expensive owner‐occupied housing is (relative
to renting) as of May, 2008 compared to the average cost since 1980. Thus a ratio number of 1.1
suggests that housing is 10 percent more expensive relative to its average cost from 1980‐2008.
Similarly, the ratio of 0.9 suggests that owner‐occupied housing is 10% cheaper than its 28‐year average.

Cost of owning relative to renting using Case&Shiller/S&P house price data as of May, 2008
"Normally" functioning mortgage market Current Mortgage Market
ATLANTA 0.92 1.05
BOSTON 0.90 1.03
CHARLOTTE 0.90 1.04
CHICAGO 0.98 1.11
CLEVELAND 0.85 0.95
DC 0.92 1.05
DENVER 0.91 1.05
DETROIT 0.78 0.88
LOS ANGELES 0.89 1.06
MIAMI 1.00 1.13
MINNEAPOLIS 0.94 1.07
NEW YORK 0.85 0.95
PHOENIX 0.96 1.13
SAN DIEGO 0.82 0.99
SAN FRANCISCO 0.80 0.99
TAMPA 0.97 1.09
Note: the fundamentals are updated as of July, 2008, except house prices which are as of May, 2008."

Okay. There saying that the amount of money you would spend on rent in a month is now equal to or more than the amount of money that you would spend on a mortgage in some markets. This is a good point. I'd like to see a better and more updated graph on this, but it is important. I need to see more to accept this point.

"In order for these mortgages to rejuvenate the housing market, they have to be available to everyone. "

Here's a plan I have to consider, although I earlier thought that it would not go anywhere because of the possible price tag. I am going to wait and say more about it when it is actually proposed. From the Economist's View:

"Effective Nationalization of the Mortgage Finance Sector"

James Kwak says it's likely that the new administration will get behind the Hubbard and Mayer plan to have Fannie and Freddie buy mortgages and refinance them at 4.5%:

We Have a Winner?, by James Kwak: After seeing dozens of mortgage proposals emerge over the past several months, there are news stories that Larry Summers and the Obama economic team are converging on an unlikely candidate: the proposal by Glenn Hubbard and Christopher Mayer... Hubbard and Mayer published a summary of the plan in the WSJ last week; a longer version of the op-ed is available from their web site; and you can also download the full paper, with all the models.

I say “unlikely” not only because Hubbard was the chairman of President Bush’s Council of Economic Advisors, but because it doesn’t look like a Democratic plan; then again, it doesn’t look much like a Republican plan, either. ... Before getting to the policy specifics, though, I want to outline two of the premises...

First, Hubbard and Mayer, like many others, have the goal of preventing an overcorrection on the downside (housing prices falling further than where they need to go to be reasonable). But unlike many others, they have calculated where prices need to go( THIS BOTHERS ME ), and one of their central arguments is that we are already there, and therefore housing prices should be propped up right now( THIS MIGHT TRUE, BUT IT'S HARD TO TELL ). This was surprising to me, since I am familiar with Case-Shiller charts like this one from Calculated Risk..., which seem to show prices still more than 50% above their 2000 levels (nominal prices, but in a low inflation environment). ...( THESE CHARTS ARE OF LIMITED USE. BUT THEY ARE USEFUL, AND, SO, YES, I'M NOT SURE WHY THEY'RE SO SURE )

Second, Hubbard and Mayer argue that housing prices are mainly a function of real mortgage rates. While they acknowledge that other factors took over at the peak of the boom, their model shows that most housing price appreciation through 2005 was due to fundamentals, primarily low mortgage rates( OK ). ... Right now, they argue, mortgage rates are historically high relative to Treasury bond yields, and those high mortgage rates are pushing housing prices below their long-term levels. (Mortgage rates are only historically high because Treasury yields are world-historically low, but we’ll come back to that.)( I AGREE )

Given those premises, the policy proposal is simple: force mortgage rates down to 4.5% (by reducing the cost of Fannie/Freddie debt relative to Treasuries), thereby propping up housing prices at a level that Hubbard and Mayer think is sustainable. ...( YIKES )

Now here’s the surprising part. In order for these mortgages to rejuvenate the housing market, they have to be available to everyone. This isn’t a program for reducing mortgage foreclosures; this is a program for boosting housing sales and refinancings across the board. ...( YIKES )

The goals of the program are to stop the slide in housing prices, stimulate the economy by unfreezing home sales and through the wealth effect of increased housing prices, and stabilize the value of mortgage-backed securities, thereby aiding the financial sector. ... ( WE SEE THAT )

One question is whether the loans will be sustainable. ... Fannie and Freddie could face the problem of getting stuck with riskier mortgages while the private sector keeps the better ones( MAYBE ). But in any case there are signs that some version of this plan will be brought to the floor.

Brad DeLong:

Glenn Hubbard and Charlie Mayer call for the effective nationalization of the mortgage finance sector. ... All in all, I approve of the plan: having Fannie and Freddie buy up mortgages at market prices and refinance them at 4.5% could do a lot of good for the country and make a fortune for the government.( I'M A BIG FAN OF DeLONG, BUT THIS REMINDS ME OF WHAT WILLIAM GROSS SAID ABOUT THE ORIGINAL PLAN FOR TARP. NAMELY, BUYING TOXIC ASSETS, FINANCING THEM CHEAPLY, AND THEN SELLING THEM FOR A LARGE PROFIT DOWN THE LINE. I SEE THAT IT COULD WORK, BUT IT STILL SEEMS RISKY )

I am, however, gobsmacked to see Glenn Hubbard proposing it."

Against The FDIC Guarantee

From Alan Blinder and Glenn Hubbard in the WSJ:

"Third, an unlimited deposit guarantee in the U.S. would pull funds out of other countries, just as Ireland's guarantee led to an inflow of money into Irish bank offices in the United Kingdom. The Irish-British deposit flow happened on a small scale; but the U.S. is the 800-pound gorilla of the world market. Even amidst all this chaos, money has been flocking to our shores.

Thus we might wind up worsening an odd sort of beggar-thy-neighbor game, causing a "giant sucking sound" as deposits fled other countries for the sanctuary of the U.S. and its FDIC. The implications for our international friends could be enormous. In a misguided attempt to create financial security at home, we might inadvertently make the world a significantly more dangerous place to live."

So, they don't care that deposits might flee the U.S., but rather the reverse.

They are against the FDIC guarantee because:

1) In going back to congress, confidence could fall.

2) Money would be pulled out of uninsured assets.

3) Money would come to the U.S. because of the guarantee.

4) It's not costless.

5) It doesn't address the main problem.

6) It might undermine confidence in the FDIC.

They've got me convinced, but are behind the curve on guarantees like many others.

An Inflationary Universe Of Plans

Tyler Cowen lists a bunch of plans. Plow through them. I did. This isn't a good sign:

"Plans, plans, plans

Tyler Cowen

There is the O'Neill plan:

His plan to deal with the crisis would start with a "discounted cash-flow analysis'' of distressed instruments that are clogging the financial system. The government would guarantee the assets, paring back the support as principal and interest payments were made, he said. "That should take care of the liquidity problem because if they have a government guarantee at a specified level they should trade just like cash,'' O'Neill said.

Or the Soros plan. And here is a "SuperBond" plan to recapitalize the banking system.

And then there is the Phelps plan for capital injection in return for warrants. Not to mention the French plan.

Or how about the Wright plan:

...to let any American with a mortgage swap it out for a government one at 7% for up to 50 years (to get the monthly payment down to where the borrower can handle it). The Treasury will pay off the existing mortgage with bonds (which it can sell cheap right now). If a borrower wants to default instead s/he can do so, and then the lender can mortgage the property on the above terms.

So many plans!

Here are some solar greenhouse plans. And here are Silly Billy's World's Elementary Lesson Plans."

Also, Greg Mankiw has been listing responses:

"More Commentary on the Financial Mess

1. Nouriel Roubini
2. Martin Feldstein
3. Glenn Hubbard and Chris Mayer
4. Richard Epstein
5. Steve Kaplan"

At some point, this isn't funny anymore.