I have a plan

From an academic standpoint, this is a very novel time in economic theory. It looks like the traditional schools of thought are not well equipped to come up with coherent responses. The debates taking place are not just interventionist vs laissez-faire, or Chicago vs Austrian schools of thought, but some bizarre combination of everything.

Some people want to plug the hole in the dyke while we figure out if we can fix it more permanently. Others want to let the hole relieve the pressure on the dyke, while we decide what caused the hole in the first place. Still others want to first decide who made the hole, before figuring out if it is worth paying to plug it. There may even be some who want to outsource the whole operation, and see if we can't find a good chinese patch for the hole while waiting for the Arab 'engineers' to come and shore up the entire dyke.

And then there is the Main Street vs Wall Street debate. I am not sure if we even have a good definition of Main Street and Wall Street.

Does Main Street mean people who are not rich, such that they make less than $5 million, or people who are not rich, such that they make less than $250k? Does Main Street refer only to primary residences, or do people foreclosing on their 3rd home also count?

And what about Wall Street? There are only a limited number of true Wall Street institutions left - but do we regard all the publicly traded companies as "Wall Street"? Because they are owned, in part, by the residents of Main Street. Does Wall Street refer only to the financial big dogs, or does every mutual fund, insurance company, credit union and small town bank also count?

I think some basic clarification on these points would help immensely in crafting whatever plan is put forward.

But, in case the members of congress are too busy arguing over terminology, I have a plan:

Given
● both residential and commercial real estate in the United States has been through an extended period of unusually buoyant prices
● regulatory oversight of lending practices in the United States has been extremely lax
● financial companies around the world have taken advantage of lack of Government oversight to exploit a situation of information asymmetry inherent in the real estate market since time-immemorial
● no one likes to lose money, but people like to lose their homes even less
● the Government is not an efficient mechanism for dealing with market failures
● any large scale, hastily designed Federal program will be prone to fraud and exploitation by the morally corrupt

Be it resolved that
● Congress, voters and stock holders need to acknowledge that many different actions are required to set the ship on course again
● We may have had too much of a good thing
● giving people cake when they don't have bread didn't work for Marie Antoinette, and it will not work for George Bush and Henry Paulson
● people are going to lose money, but no one should lose their shirt

Be it further resolved that
● Bankruptcy judges should be permitted to modify the terms of a mortgage or write down the value of a loan for primary residences not yet foreclosed
● Extraordinary effort should be made by financial institutions owning bundled mortgages to identify each and every physical property owned to minimize fraud and demand accountability for asset ownership
● Government assistance in the form of assuming asset ownership should be offered at a rate below the face value of the asset so that financial institutions also assume a burden for their poor judgement, and Government assistance should only be offered when the physical properties can be identified
● the physical properties transferred to Government ownership must be made available for immediate sale to any buyer willing to purchase the property at a price that ensures a net profit to the Government, taking into account the cost to the taxpayers of creating new Government programs as well as the costs associated with the increased budget deficit due to the initial assumption of the asset
● an immediate and transparent system between the Government "real estate office" and Government mortgage lenders Fannie Mae and Freddie Mac must be established so that credit can be extended to credit worthy buyers of newly acquired Government property
● State and Federal Government agencies should be given the option of purchasing newly acquired government property for their various programs and office space needs, or leasing newly acquired government property for office space needs at a fair value
● specifications of all property owned by the Government "real estate office" should be made freely available on the internet
● Government assistance should be offered to all institutions, large and small, on the same terms or at the same point in their financial insolvency, such that larger institutions with a large number of vocal stock holders are not at an advantage over community banks and real estate developers