. August 28, 2008 SouthAmerica: Yesterday when I was reading the Financial Times an article by Martin Feldstein called my attention because he is an influential American economist and he seems to be suggesting on his article a desperate measure to keep the US economy afloat. He said on his article: âNegative equity mortgages are a big source of instability because US home mortgages are generally âno recourseâ loans, implying that if an individual defaults on his mortgage the creditor can take the property but cannot claim other assets or income to pay the remaining loan balance. â¦ Because of the decline in house prices that has already occurred, more than 10m home owners now have mortgages that exceed the values of their house. This is 20 per cent of all homeowners with mortgages. For half of that negative equity group, the debt exceeds the house value by more than 20 per cent. If house prices fall another 15 per cent, negative equity mortgages will rise to 20m.â Mr. Feldsteinâs desperate solution to try to stop the downward spiral of house prices according to his plan: He said âThis is a difficult problem and there are no easy solutions. I have proposed a programme of âmortgage replacement loansâ that I believe would stop the downward spiral of house prices. The basic idea is to provide an incentive to stop defaults among those who now have positive equity but are vulnerable to a further price decline. The federal government would offer every homeowner with a mortgage the opportunity to replace 20 per cent of that mortgage with a low interest government loan â up to a loan limit of $80,000 (â¬55,000, Â£44,000) â that reflects the governmentâs lower borrowing rate. Creditors would be required to accept this partial mortgage pay-down and to reduce the monthly interest and principal by the same 20 per cent. That mortgage replacement loan would not be collateralised by the house but would be a loan that the government could enforce by lodging a claim on an individual who does not pay.â Let me see if I understand Mr. Feldsteinâs desperate plan to help save the US financial markets from a further meltdown. Right now these people with these negative equity mortgages are a big source of instability because US home mortgages are generally âno recourseâ loans, implying that if an individual defaults on his mortgage the creditor can take the property but cannot claim other assets or income to pay the remaining loan balance. And Mr. Feldstein is suggesting that the US government create a new federal government programme of âmortgage replacement loansâ to transfer up to 20 percent of the decline in that loan (which individuals can just walk away from it today without much recourse for the lending institution - I want to remind people that this is the part of the house equity that has evaporated during the current housing market decline) and he is suggesting that these people takes new loans up to US$ 80,000 from the US government that the US government can go after any other assets that the person has it or the government could go after the future earnings of that person. Here is a leading American economist putting forward a desperate economic plan to help stop the US financial markets from a further meltdown and as I was reading his suggestion I was thinking even if the US government could act and adopt his plan then what kind of fool would take such a loan from the US government? I understand that this is the best idea that he could come up with as a desperate effort to help stop the US financial system from a further financial implosion. And that is a very good example and represent the best that Americans can do today about solving its humongous financial crisis. Besides being a professor of economics at Harvard University, Mr. Feldstein is the president of the National Bureau of Economics Research. Following my posting is a copy of Mr. Martin Feldsteinâs entire article: âHow to shore up Americaâs crumbling housing market.â .