So Government takes a major stake in all these banks, then forces them to loan (since they are majority shareholders now) at super low rates like 2-3% interest for 30 year fixed mortgages. Real estate prices soar again. CDS's become worthless. Crisis over. CDS's are then made illegal shortly after and government raises interest rates and house prices fall again, but this time nobody walks away cause they got a 2% interest rate thats fixed so they have cheap monthly payments. Even if there are people that walk away, its no big deal as there are no CDS's anymore. Think thats it?
Yupe. This is call keep inflating the credit bubble. Free money baby! That works until treasuries yield start going up.
You overlook the fact that you cannot do business with people who don't have any money. Homeowners don't lose their homes because they cannot afford the interest rate, they lose their homes because they signed on the dotted line for a loan they could not afford to make payments on. When the jobs disappear overseas, or consolidate into cities (leading the migration back to urban majority), mortgage payments are missed and the bank takes it back. Owners walk when they cannot pay the mortgage. Interest is a minor detail, unless you're talking the Carter years... which are returning soon, btw... Hussein is another peanut farmer. Incidentally, this bailout helps zero homeowners to keep their mortgages. It pays the bankers twice instead of just once, as before. They get paid the value of the mortgage PLUS they get to keep the house to sell. Not a dozen of you got that, but I said it anyhow.
Could be and certainly worth keeping in mind. For the US economy to "get going again" would require we be able to provide to the world a product or service which cannot be done with overseas cheap labor.... Can't think of anything. To get spending money into the hands of "gotta spend it" consumers, some new housing inflation gimmick is likely necessary.
Well i think we have fixed that problem of homeowners buying what they cant afford. The days of zero down, closing costs rolled into the loan and 5,000 cash back to people with 550 credit scores are long gone. Also, i think you havent done your research on this bailout helping current homeowners keep their homes. Perhaps you havent heard of H4H (came into effect 2 weeks ago and will last until sept 2011) Basically it lets people refi and gives them 10% equity at the new appraised value. So say, someone bought a home for 400k(0 down so a 400k mortgage) in 2005 and its now worth 200k. They get the H4H and they now have a 180k loan at current interest rates on their home. Who is going to walk away when they got 10% equity and lower payments?
The bailout money and unlimited government surety means they are going to have deep pockets to enforce all contracts including foreclosures, loan defaults... and all provisions for recovery of all legal fees and expenses. There is going to be aggresive and ugly legal action now that the banks are shored up and funded. They will not settle as time is on their side.