The problem is that these programs take money from everyone else to help a very, very small number of homeowners. And if the programs are ineffective (which they have been so far), they may actually cause more people to face foreclosure.

All of this inflation where the government prints money and throws it at banks will also result in higher prices down the road. The banks are hoarding the money now, but eventually they will begin making poor investment again, inflating another bubble before another collapse.

One argument that has been made is that it is far too difficult to throw money at hundreds of thousands of homeowners to stabilize the system. So the government throws large amounts of money at a few small institutions, which is supposed to help everyone.

The problem is, these banks, once the government bails them out, have absolutely no incentive to work very hard with homeowners to save homes from foreclosure. With essentially free money, banks can sit back and do nothing, crying for more money when more people face foreclosure.

And isn’t this exactly what it seems the banks are doing? Create a crisis, not respond to the fallout, cry for a government handout, use the bailout to act even lazier, not respond to further fallout, cry for more handouts, and so on.

Also, the few government programs designed to help homeowners work with their banks put restrictions on the lenders and require them to take losses on delinquent loans. So obviously, the banks are very concerned about having to recognize even more losses, which might drive stock prices down.

There is no real incentive for the lenders to take losses on loans and work with borrowers to restructure defaulted mortgages. In fact, there is a much larger payoff if the banks keep the foreclosures, do nothing to respond to them, and go to the government.

The bailout plans (especially the most recent $700 billion one) have required nothing from the banks other than that they be in serious trouble and need money. There are no restrictions and the banks can dump these bad loans directly onto the government, instead of having to work with homeowners.

The government has given the banks an incentive to keep making bad loans and then never address the problems caused by shoddy lending guidelines. The more people they foreclose on, the more free money they can cash in on from the bailout plans. So nothing will continue to be done to help homeowners stay in their homes.

Hope that helps.
ForeclosureFish

The system we have in place is based on the issuance of credit. It at its very core needs people to get in debt for it to be profitable. Just like in a classroom, not everyone can be an A student, and some taking on debt will not be able to keep up with the costs of repaying it for whatever reason. A system like this can only breed winners and losers and the banks from the top down know this, but this is how they make money.
Once again the scenario of money being thrown at banks is the actual purpose of the plan. It is designed so that in 10 years money is thrown at them again. The system is based on creating debt since that is how the banks get paid off of interest.

Think of it this way, the Federal Reserve (A private central bank) is the parent and owner of the currency. It does not give but rather loans this currency (paper based on nothing) at interest to the Government and the smaller banks. In this case the smaller banks can be called the children. They for their part, can only make money by giving it out to ordinary people at even a higher interest rate. If they do not loan out more money, not only do not make any but more importantly to the parents, the parents have no reason to issue out more worthless paper notes. We are simply the slaves on the wheel that are required to push this fraudulent system along.

What has happened is that the children have blackmailed the parents. They are saying we will no longer go bankrupt giving out bad loans. They will either get the parent to bail them out, or they will allow the slaves to die. The result is the emergency bail out because the parents are ever greedy. The Fed runs like a corporation only using the money supply as its means of profit.

In this system our real wealth in labor and goods is transfered over to the bankers in exchange for what amounts to an illusionary value of credit. In reality, everyone is taxed on this money twice. Once in taxes paying off this debt, which cannot be paid off since it is mathematically impossible from its inception, and the second time with the inflated currency when it reaches the market place.

The solution to this problem is to allow banks to go bankrupt for having bad business practices. That is what bankruptcy means. If there is no credit so be it. No one can be in debt. The economy will slow down by 50% but at least its growth in the long term will be real growth. The currency needs to be back by a solid value, like Gold, to prevent the systematic policy of inflation and to restrict the creation of money.

How can this happen if the Federal Reserve makes its profit off of making new money!? It is not in the interest of the people or the nation to have its currency run by a private conglomerate of bankers. They will only serve their interests first, then those of the main industriliasts, followed lastly by the sovereignty of the nation and its people.

There is more to be made by people losing their homes then never giving them credit to buy one in the first place. That is simply a small basic premise of this system. Without junkies there can be no dealers. The whole system needs to be done away with.

Should we reward people who bought houses they could not afford?