The mortgage companies came up with a 'bait and switch' scam whereby they would sell sub-prime adjustable rate mortgages to people who could not afford normal mortgages. Playing off the American fantasy of home ownership they scammed millions of desparately poor people into taking these loans. These people hoped against hope that something would break for them financially that would make it possible to meet their mortgage payments (like a 'RAISE' - apparently another American fantasy). The banks & mortgage companies planned it so that after the sub-prime 'grace' period ended, the interest rate would soar to a level that the vast majority of mortgagees would not be able to pay their mortgages and would go into default. The banks would then take ownership of te property and sell it at a much higher price than the original mortgage value. The former home owners having paid the taxes and maintenance on the properties for the first several years. So the 'plan' was for example: They give a $100k mortgage to the morgagee who pays the taxes & interest for the first few years. Since almost all mortgage payments go to paying the 'up front' interest this was no problem for the banks. Now, if they rolled up groups of say 100 of these mortgages into a debt package, knowing that statistically 50% of the mortgages would default on an average of, say 3 years, but that the market value of the properties would accrue by an average of 40% over those three years, for the 50% that defaulted the math works out to: 50x$100k=$5mil invested. 50x$100kx1.4=$7mil realized in 3 years for a net gain of $2mil in an average of 3 years. So the banking industry bought up these debt packages like hotcakes and then proceeded to use them as equity (collateral) for loans. The lenders of these secondary loans then used those loans, in turn, as collateral for more loans...and so an infinite chain of loans went on for years between the banks with the root equity behind these loans being these mortgage packages. Unfortunately for everyone, so many mortgages defaulted that there was a flood of properties on the market and instead of these properties accruing in value, they lost value. So that, if these properties lost 10% of their value the new math would be: 50x$100kx0.9=4.5mil for a net loss of $0.5mil BUT the loans were taken out under the assumption of a $2mil gain, leaving the anticipated equity vs. the real equity at a net loss of $2.5mil. This ran so deep in the financial markets that no one trusted anyone and no body would make any loans to anyone. This froze the financial markets and led to the present crisis. Now, we could as I've suggested in an earlier thread, have the government pay up to 50% of the bad mortgages and recieve up to 50% of the equity in these properties, which would keep everyone in their homea and turn the real estate slump around... BUT The chain of banking loans depended upon 50% of the loans defaulting. If these loans did not default then based on $1k/month for 36 months mortgage payments on a $100k loan the math would be: 50x$1kx36=$1.8mil for a net real loss of $3.2mil but verses the anticipated value of the loan packages: a net loss of $5.2mil Sooo...helping the mortgagees pay their mortgages would be considerably WORSE for the banking industry than doing nothing. This leaves the government with 3 options: 1. Do nothing (or help the Mortgagees, but nothing else) which will cause a collapse of the financial industry and which will, in turn, lead to a collapse of the entire economy of western civilisation, which in turn, will lead to a HUMANITARIAN DISASTER BEYOND ANYTHING THAT HAS EVER OCCURRED IN HUMAN HISTORY. 2. Give the banking system a whole lot of money, despite the fact thet they are a bunch of jackasses that based their entire financial structure on a SCAM. The tax payers will just have to hope that they get some sort of equity, bt will have to eat the difference. (ie.e the present Bush/democrat plan). 3. Help the mortgagees and let the banking industry collapse and have the government create a new socialized banking system. (Runs against the grain of most American capitalists). This would make a good poll wouldn't it? If you have any better ideas PLEASE let the rest of the world know.