If you want a Subprime Bailout, do it Properly!

...A proper bailout must take a completely different approach and cannot be limited to “just” a quarter million homeowners. Someone who purchased a house that is too expensive to maintain is best helped by downsizing to a less expensive home. However, homeowners are often “locked into” their mortgages as the mortgages are higher than the market value of their homes. Leverage is great when home prices are rising, but is painful when prices are falling.

When a homeowner is allowed to downsize to a home that fits his or her budget, everyone will benefit in the long-term. The homeowner will, once again, be able to save, invest and spend money, have a life. Home prices will adjust to a more reasonable level, making them affordable for new buyers. Lenders will have an incentive to apply prudent underwriting (lending) standards...

For the complete article see http://www.merkfund.com/merk-perspective/insights/2007-09-05.html