The president unveiled his latest mortgage bailout plan designed to reduce mortgage balances for some, payments for others, and both for many more.  It has different benefits depending upon whether a borrower is out of work, working but unable to pay, or able to pay but so far under water in the value of the home versus the loan, that it isn't worth it to pay.  Further there is pressure brought to bear on banks carrying second mortgages, which have been standing in way of current refinancing of first mortgages.  The government wants banks to write these down as well.

Now, I am of split personality on all of this.  When I put on my business hat, I would tell my subscribers to definitely take advantage of this plan when it actually becomes available.  After all, if the government is going to hand you free money and you don't take it, well, you may be both principled and homeless.  On the other hand, this plan can only lead the country further down the road to destruction.  There are so many ways to game this thing to make sure that the borrower is in the best possible category to get the most benefit and therefore so many rules that bureaucrats will have to write to prevent it, (which won't succeed because they never do this) that it can only end in a big mess.

Further, it again creates a special bail out for a special class of people who are special only in that they made a poor buying decision (albeit many times it was based on bad information as opposed to bad judgment).  I mean, I bought a T.V. three years ago and it has lost value and new ones are cheaper.  Do I get a bail out on my loss so that I can buy a new on and stimulate the economy? This is a very slippery slope of what economists correctly call "moral hazard".  Once you start helping one group over another the cry of "fairness" is certain to erupt demanding more and more from other groups.

Plus, though the banks are profitable on paper, it is only because of phony new accounting rules and the government lending them money at near zero, while selling them bonds at nearly 4% and booking the profit.  It is a giant Ponzi Scheme.  Forcing new, real losses on banks, all the while allowing profits that are a mirage is going to end badly - mark my word.  And the rest of the world is catching on to all of this as the latest treasury auctions have been in the words of the Wall Street Journal, "tepid".  This means rising interest rates and slower economic growth. 

I get the feeling that we are plugging up holes in the bucket only to spring new ones and have yet to figure out that we need to replace the bucket!