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I am no financier, and have a layman's understanding of how macroeconomics works. But it seems to me the underlying issues that have created the current crisis are telling us exactly how to solve them. Unfortunately, it seems the proposed solutions are going completely against that intuitive inclination.

I am now hearing that Paulson (et al) is floating the idea of improving loan terms for borrowers in peril. This is a very good idea if you wish to abandon the principles that we have not only built this country on, but the principles of common sense.

Someone slap me and tell me where I'm wrong: any governmental assistance is essentially a reward or incentive for prior behavior. We are now hearing that borrowers in distress may be able to refinance at low interest rates, and first time buyers may be able to take advantage of these rates. How is this any different than what got us here in the first place?

Would it not be more prudent to provide favorable conversion rates to prime borrowers, freeing up more capital to gobble up the distressed properties? And when I say "gobble up", I mean invest in, leaving willing dwellers in place.

Saps like me are current on payments and refuse to bail on obligations, even if we may be underwater or close to it. If there is relief to be had, entice me with investment opportunity. I'm overpaying (from a point-in-time perspective) for my sole real estate investment, but I'm living up to my commitment.

Why give the preferred rates and terms to those who have demonstrated an ability to default in alarming rates; why not provide favorable refinancing incentives to those who have demonstrated a commitment, freeing up that new capital to invest in the distressed properties?

How is this any different than what got us here in the first place?

During the boom times, people would buy the most house they could get for $x monthly payment, rather than the absolute price. Low interest rates helped people afford a higher priced home. When interest rates go up, the price they can afford goes down.

Now prices are declining on their own, but that is causing millions to be in illiquid assets. What they are trying to do is put a floor on the declining housing prices, by lowering the interest rate considerably, and stimulating demand. It might stimulate demand, but I don't think it will cause more damage. The bubble has already been popped, and isn't coming back in a generation.

Someone slap me and tell me where I'm wrong: any governmental assistance is essentially a reward or incentive for prior behavior. We are now hearing that borrowers in distress may be able to refinance at low interest rates, and first time buyers may be able to take advantage of these rates. How is this any different than what got us here in the first place?

Ok, you are wrong, the ideal is to try and put a floor on the declining real estate value. It has nothing to do with the few mortgage foreclosures. We have millions of unsold new homes and no buyers. Which means the value of all the funny money mortgages that congress failed to regulate have no value.. The mortgage foreclosure is the cover story for wall street inventing money, about 44 + trillion.

The attempt will fail, laws of supply and demand.

Every bail-out version I’ve heard draws a line in the sand regarding the individual home owners. They must be living in the house and making a documentable effort to stay current in order to qualify for any scheme that reduces the interest, the principle or both. I am not saying that I agree, just stating my understanding of the ‘deal’.