Want to fix the mortgage mess?  

First, It is important to know who is to blame so we don’t turn the solution to the problem over to the same people who caused the mess.

There is plenty of blame to go around. Let me list a few:

  The people who took out mortgages who were not qualified or capable of repaying them. – They are responsible for knowing enough to make the right decisions for their own financial situations. 

  The Congress and the state legislatures for passing laws, intended to stop “redlining”, but, which in my opinion prevented lenders from properly qualifying loans. Most of the anti-redlining laws have resulted in lenders offering loans they would not have considered safe prior to the oversight for redlining, and, prior to Fannie Mae and Freddie Mac ‘guarantees.’

•  The Fed for keeping interest rates artificially low for the past many years.  The Fed was created to prevent the very economic panics of the type we now enjoy (enjoy?).  In this case, it has made mortgage money too cheap and too available, encouraging too much risky lending.

So how do we fix the problem?  We certainly don’t look to Congress or the Fed to do more of what caused the problem.  I’m looking for your suggestions but to start things off, I have an idea below that you might consider:

Hire Warren Buffett, Charlie Munger, and three other proven private investors.  Give them control of $500 Billion for the ‘bailout.’  Pay them nothing.  Give them an incentive (4% each of the value of the portfolio minus the $500 Billion four years hence) to increase the value of the mortgage portfolios of Fannie Mae and Freddie Mac.  Presumably, they would select from the devalued loans in Freddie and Fannie’s portfolios those with the potential for the best return.  I’m betting they would greatly increase the value of the portfolios, greatly increase the value of the $500 Billion government program, and stabilize Freddie, Fannie, and the mortgage market at the same time.  If Congress or the Fed use the same $500 billion, they will use it to buy votes and golden parachutes by directing the money to where it will give them the most influence.

How would you fix this mess?

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