Please explain how a mortgage instrument (typical holding time: 7 years) and an investment instrument (typical holding time: 35+ years) have anything to do with each other.
I'd say that the conversion of the former into the latter is rather close to the heart of the current problem. To wit, the idea that mortgages could be bundled, sold, re-sold, and (mis)valued en bloc as though they were investment-grade securities is pretty directly associated with the current mess.
As to the intermediate point in this thread: it will also be necessary to find and somehow qualify a third class of current mortgage holders: those who were simply flat-out lied to. There are good and well-documented stories in reputable press that I believe of people whose "current income" and other numbers on mortgage applications were fraudulent or otherwise manipulated to get larger mortgages. Some of the buyers were no doubt complicit in this fraud (either through omission or comission). It's unclear to me how we'd figure that out and to what degree we'd bail out this class of people.
And finally, as to the original point cos is making: the bailout of large financial institutions is only VERY indirectly related to the mortgage crisis. It's much more directly related to a business infrastructure in which people and companies must borrow vast sums to operate. This includes entities ranging from investment banks that borrow billions to pay for securities transactions that won't clear for 2-13 business days, all the way down to state-level institutions that borrow hundreds of millions of dollars every year so they can make student loans to kids going to college.
In this kind of infrastructure, the inability to borrow funds - at ANY interest rate - causes business to stop. The purpose of bailing out at the high end is to maintain the flow of credit that these businesses require in order to operate. The present situation is one in which the people who normally make such loans won't make them because they have little or no confidence of getting repaid.
Re: middle ground
I'd say that the conversion of the former into the latter is rather close to the heart of the current problem. To wit, the idea that mortgages could be bundled, sold, re-sold, and (mis)valued en bloc as though they were investment-grade securities is pretty directly associated with the current mess.
As to the intermediate point in this thread: it will also be necessary to find and somehow qualify a third class of current mortgage holders: those who were simply flat-out lied to. There are good and well-documented stories in reputable press that I believe of people whose "current income" and other numbers on mortgage applications were fraudulent or otherwise manipulated to get larger mortgages. Some of the buyers were no doubt complicit in this fraud (either through omission or comission). It's unclear to me how we'd figure that out and to what degree we'd bail out this class of people.
And finally, as to the original point cos is making: the bailout of large financial institutions is only VERY indirectly related to the mortgage crisis. It's much more directly related to a business infrastructure in which people and companies must borrow vast sums to operate. This includes entities ranging from investment banks that borrow billions to pay for securities transactions that won't clear for 2-13 business days, all the way down to state-level institutions that borrow hundreds of millions of dollars every year so they can make student loans to kids going to college.
In this kind of infrastructure, the inability to borrow funds - at ANY interest rate - causes business to stop. The purpose of bailing out at the high end is to maintain the flow of credit that these businesses require in order to operate. The present situation is one in which the people who normally make such loans won't make them because they have little or no confidence of getting repaid.