Personally, I’m opposed to all government intervention in the economy. After all, if we bail out the banks here, we will have a long-term bailout mentality that will impact future crises. We will create a moral hazard that encourages even more imprudent risk-taking.

On the other hand, is it possible that we could have a government intervention that does little harm, provides stability for the mortgage market, and does not let Wall Street firms take a windfall?  I dunno. Assuming that I had to propose a plan, this is what I would do:

(1) Abolish the Federal Reserve.

(2) Require all credit default hedging options to be traded in open market exchanges.

(3) Prohibit Fannie and Freddie from backing Adjustable Rate Mortgages (ARMs), interest-only loans, and balloon loans.

(4) Allow Fannie and Freddie to only back residential mortgages that are no more than triple the verified adjusted gross income of the borrowers.

(5) Allow homeowners in need of relief the opportunity to refinance with the government:

• The loans would be fixed-rate.
• The borrower would be liable for the balance of the loan as long as it is with the government.
• The loan would not be dischargeable in a bankruptcy.
• The estate of the borrower would be liable for the balance of the loan in the event of the death of the borrowers, and the government would have the priority in collecting on the loan, over other creditors.
• In a foreclosure, the borrower would be responsible for any portion of the loan that is not covered by the “fire sale” of the house.

This would:

(a) allow distressed homeowners an opportunity to refinance.

(b) resolve the “tranch dilemma” that the government would otherwise face in the current bailout provisions.

(c) provide liquidity for the processing of distressed assets.

(d) provide a reasonable opportunity for the government to recover the costs–even make a profit–thereby minimizing taxpayer risk.

(e) does not reward Wall Street

(f) provides the market an easy way to assess current and emerging default risks, as options pricing would reveal emerging red flags and make for a more efficient market.

(g) provides a framework whereby those with good credit records can obtain loans, whereas riskier borrowers woould be a lesser threat to the system.

If I had to go with a program, it would be similar to that.

Still, I’d rather have no intervention at all. Even though that could impact me.

While Congress haggled over whether to pass a $700 billion shakedown of the American people, the Federal Reserve–underneath the radar of most media outlets–dumped $630 billion into our financial system.

Congress needs to rein in–I’d suggest abolish completely–the Federal Reserve. Haven’t they done enough damage? Ever since the creation of the Fed, the dollar has lost over 90% of its value. It’s time to abolish that whole outfit.