there are many flaws in your arguments.

1a) many loans ARE by speculators, so any bailout needs to make a distinction between who it is helping.
1b) many loans were taken by people who knowingly could not afford their property. There have been reports and testimonials about this on PBS and the NYTimes. A year ago there were interviews on a PBS program (maybe NOW) which involved lots of people taking no money down mortgages and these people were simply def to warnings "we'll face those problems then, we're just so happy to have ALL THIS SPACE". In a recent NYTimes article they interviewed a woman who had a six figure salary who bought a 4 bedroom home for $250,000 and she is whining that she does not want to take a $6000 loss on the sale. There are thousands and thousands of American's who don't want to be responsible for the risks they knowingly took.

2) A bill to modify loans by the judge is market fixing. Again this helps those who took risks and punishes those in the lower and middle class who knew the market valuations were too high and knew to wait this out. Why can't you be patient and wait for the banks to deal with this on their own? You think the banks want thousands of foreclosed properties to deal with? NEVER. They will adjust on their own when foreclosures become too costly.

3) Totally one sided. If many homes go into foreclosure these homes will be available for purchase at auction at far reduced prices. These homes will then be affordable to those who want to buy a home but previously couldn't, and/or affordable to people who would like to own and rent. The primary problem for renters and the lower and middle class is that RE costs too much. Your bleeding heart fixes will only ensure to prop up prices, limiting access to affordable homes for hundreds of thousands of middle and low income people.

Your parallel to Katrina victims is misapplied. In fact Katrina victims and the sub-prime mess are near opposites when it comes to the issue of personal responsibility, and this is the inflection point on which using federal aid turns. Home loss in NO resulted from years of neglect of the levies. We could assign some blame to people there for living below sea level - e.g. don't be stupid and live below sea level. However this is mitigated by the fact that for years the people of NO have lobbied the government to make repairs to the levies, and those calls to action went ignored. So they were aware of their situation and tried to take action to prevent the loss. This quite the opposite from many of the sub prime borrowers who took risky loans knowing they were risky.

4) Fine. However, the onus is on borrowers to understand the deals they enter into. Should I be able to go buy $100,000 of apple stock and then if it tanks claim that I didn't understand that the market could go down? For the past several years it has been widely reported that home prices were over inflated. Yet people still went forward and purchased homes at these prices. Many people may have entered into these lower rate riskier loans on the gamble they would refinance in a few years. However the housing market has dropped preventing them from refinancing. Well, that's the way it goes when you take a risk. The real bottom line to this story is that people should not have been buying homes the last few years because the market was clearly inflated and not sustainable.

While it is very disruptive to people to lose their home, it is not life ending. Yes, they will have to rent for a while, they will have to move, they may have live much more modestly, they may have to declare bankruptcy. But that is just economic reality, a reality that the responsible have been able to live with. Subprime borrowers can too.

I conclude with a couple of questions for you. How come when it comes to policy you seem only to consider the interests of those, many of whom, got themselves into a bad deal, and not those who were smart enough to sit this all out and wait for the coming market correction? Any bailout will doubly punish the responsible, one by propping up an inflated market, and two by making them pay for it. Also, given that this problem has been so obvious to so many, across all income levels, for years (the media has widely reported the impending disaster for years) why do you not expect the subprime borrowers to have also known.

My problem with bailing out homeowners but not renters isn't quite the same as you describe. The US doesn't have money for a bailout. It would if it were in a state of growth or headed into an ordinary recession; however, stagflation you solve by tightly controlling spending. And there's a legitimate concern that homeowners get bailouts whenever there's a home ownership crisis looming, while renters have had to contend with skyrocketing rents in the cities with nary a peep from any politician above the local level.

The comparison to New Orleans is flawed because disaster relief is unlike any other government program. San Francisco got relief after the 1906 earthquake and remained the economic center of California; the Tennessee Valley got New Deal aid and remained dirt poor and in need of aid, to the point that in one county in the 1970s there were 40,000 people applying to 1,400 jobs at a new TVA plant. Europe got reconstruction money after World War Two and quickly got back on its feet (except Britain, which had an empire to lose); less developed countries never did manage to turn aid into development. When the problem stems from a disruption of the market, aid works a lot better than when it stems from the market itself.

Will - I will for the moment ignore your use of the the pejorative term "bailout" and focus on some of the issues you raised.

To your comment "any bailout needs to make a distinction between who it is helping," you may not have noticed, but I specifically said that most of the foreclosure prevention proposals requiring federal tax dollars are restricted to owners of primary residences.

Unless you and I personally interview every single person who has received a subprime loan, it's useless for either of us to use the word “many” to enumerate those who did or did not know they couldn't afford their property.

But I can say this: I've been closely following press coverage on subprime and predatory lending for 10 years now and I can safely say that the stories about people who knew what they were getting are out numbered by stories of people getting scammed by at least 10 to one.

Beyond that, perhaps the problem here, Will, is that you're selectively getting your information from scattered press reports, or from hearsay, or merely from your own prejudices about the untrustworthiness of consumers.

As for me, I've gotten my information from more direct sources. I used to do foreclosure workshops with hundreds of homeowners at a time; I've had countless conversations with homeowners with subprime loans. I've worked closely with foreclosure prevention counselors. I've talked to journalists who have done extensive studies of the techniques used by subprime lenders and brokers. I've even talked to lenders themselves. There is OVERWHELMING, documented and irrefutable evidence of consistent patterns of people being lured and deceived through hyper aggressive sale techniques, and abusive lending practices. The patterns are so consistent and pervasive that advocates and legal service providers have names for the scams and practices. That's why the likes of Delta Funding, Ameriquest, Wells Fargo and Countrywide have been sued.

Don't you get it? Moodys has predicted that 3 million homeowners with subprime loans are in danger of losing their homes over the next few years. Do you think the spike in foreclosure is a result of more stupid and greedy people, or do think perhaps that there is something structurally wrong with the subprime market itself?

Clearly, homeowners have a personal responsibility. But their ability to get into a bad deal is determined by the underwriting of the originator, not the other way around. How do I know? Because I used to run a financial institution. If a loan went bad and I told my federal examiner that it was the borrowers fault, or that the borrower knew what they were doing, s/he would have laughed me out of the room. Why? Because it DOESN'T MATTER what the borrower's mental or intellectual disposition is.

The one making the loan has a fiduciary duty to make sure that they've used sound underwriting to make sure that the loan is paid back. And if there is a pattern of delinquencies or defaults, it's because of something the underwriter is doing, not the borrower.

When a loan document is being signed, the borrower is the one with the least information, the least experience, and the least ability to "know better", especially when compared to the person being paid to make the loan. And in the case of many subprime loans, the real cost of the loan was often hidden or simply not disclosed. That's why there are proposals to make sure that underwriters determine borrowere affordability at the fully indexed rate, not the introductory rate.

As for a judge modifying loans being "market fixing", I hate to break it to you Will, but that's what happens in bankruptcy court. Right now judges have the power to modify many different kinds of debt, including loans for vacation homes and boats. The proposed bankruptcy bill merely extends coverage to primary residences.

Perhaps the most egregiously poor argument you make is this one: "Why can't you be patient and wait for the banks to deal with this on their own? You think the banks want thousands of foreclosed properties to deal with? NEVER. They will adjust on their own when foreclosures become too costly."

Will, banks are NOT modifying loans and will foreclose in a heartbeat, especially because many of the securitization contracts prevent modification. Every recent indicator has shown that only a small fraction of troubled loans are being "modified", and even when they are being modified, its often under terms that are either barely more affordable, and sometimes even more unaffordable to the borrower.

In this latest round of fights over the bankruptcy bill, the Mortgage Bankers Association - in cahoots with the Bush administration of course - has not only staunchly opposed the bill, but has explicitly said that it opposes stopping certain homes from going into foreclosure. You just couldn't be more wrong on this point.

Your comment about homes going into foreclosure is also inaccurate. Yes, foreclosures make property values go down in the short term, but in long term they often lead to inflated housing prices. Properties that go into foreclosure are not typically purchased by homeowners in need, but by large speculating companies who often make minimum improvements on the property, hike up the price, and then flip the property.

Will, you have read my blog and have taken the time to comment and I appreciate that. But your point about people not being smart enough to know better is deeply offensive. You’ve just called millions of people stupid.

Eighteen months ago, the average American didn't even know what a "subprime" loan was. Brokers and lenders don't use the term when they are hawking their products. Despite scattered press attention, only recently have the prevalence and details of the scams made it into the mainstream media.

Until recently, no one really knew if this was actually a real estate bubble. I can't tell you how many people in the real estate industry argued that this was not a bubble. And when you're a homeowner you have no idea what direction the market is going in, especially in a place like New York where prices always seem to be going up. You can sit out a rise in housing prices only to find out that the prices never stopped going up and that you missed an opportunity to buy a home when you could actually afford it.

Will, while you sit in judgment of them, people are just trying to put a roof over their children's head, start building equity for the future or live the so called American dream that conservatives love to hawk. About the only thing I do agree with you on is that homeownership is not necessarily for everyone. However everything in our popular culture makes you feel like a loser if you don't have a yard and white picket fence. Where I live, in Central Brooklyn, this is doubly true, because people are fighting so hard to build assets and break into the middle class.

And to answer your question, I write from my perspective because I see people everyday chewed up by companies whose only interest is in making a buck on the backs of poor people and people of color. And in the end, that's what subprime lending was all about, exploiting the desperation of people who have been told that they are unworthy and untrustworthy because they live in a certain neighborhood, make a certain living or have a certain credit score.

For the record, I have friends and family among the people who "were not smart enough" , the people whom you dismiss so casually. I've taught financial literacy courses, run a financial institution, received a very expensive education and have still been targeted by abusive practices. So the next time you refer to me and mine, I ask you do so with more respect and a greater command of the facts.

Alon - While I don't disagree that the concerns of tenants should be attended to by politicians, the two issues are not mutually exclusive. I also think you, perhaps unintentionally, grossly downplay the magnitude of the problem.

The equivalent on the tenant side would not be "skyrocketing rents," which is certainly bad enough, but a scenario where more tenants and their families are being evicted than the previous year - by an order of millions - with each of them having their bank accounts raided for tens of thousands of dollars, perhaps hundreds of thousands of dollars in the process.

Having said that, the issues facing poor, working class and middle class people without a mortgage are considerable, and should not be minimized or forgotten. Homeowners are no more deserving than anyone else.

I'm not discounting the concerns that homeowners are getting preferential treatment. In the meantime, what do you think the impact on the economy is going to be if billions are lost in savings, equity, productivity and property?

A survey released just today by The National Association for Business Economics ranked the subprime debacle as the number one threat to the economy and growth over the next two years. Should we just do nothing?

Perhaps most importantly, I think it is misguided to make this a renter vs. homeowner issue. Both you and Will misinterpreted my comparison to New Orleans, which admittedly, may not have been completely clear.

I'm not arguing that the same degree of "victimhood" applies, or that homeowners with subprime loans are suffering as much as Katrina victims, or that the foreclosure crisis should qualify as a natural disaster (Although, to Will’ s point, for years, just like Katrina, people have been lobbying the federal government to do something about subprime regulation; read "Fed Shrugged as Subprime Crisis Spread" http://www.nytimes.com/2007/12/18/business/18subprime.html - Actually, even that article under reports how much predatory lending advocacy, and how many warnings were issued to the Fed for the last ten years).

My point is that, like Katrina, the foreclosure crisis wasn't about homeowners, or tenants, or even rich, poor, black or white people. It's about humanity - human beings and entire communities experiencing pain, dislocation and wealth stripping on a massive, almost unprecedented scale. And let me just add, getting back to Will's point about people knowing what they were getting into, countless unwitting seniors have been targeted by subprime, foreclosure rescue, home improvement and reverse mortgage scams. (check out yesterday's New York Times article, http://www.nytimes.com/2008/03/02/business/02reverse.html?em&ex=1204520400&en=d8048402e4cd82a3&ei=5087%0A

Using the politically loaded term "bailout" in reference to help for people facing foreclosure is dangerously reductive, misdirects the conversation, and under appreciates what is happening to millions of people as we carry on these lofty debates. One's person's "bailout" is another person's act of justice and salvation.

I think you have a lot of great points here, Mark. One thing that I think must be kept in mind regarding federal foreclosure prevention is legal protection in the case of renegotiation of mortgage repayment. No bank WANTS to foreclose. The process of foreclosure takes months (usually of mortgage non-payment), loads of time, and it is estimated costs the equivalent of about a quarter to a third of the home's value to complete. What's more, in today's falling house prices, banks taking over a property are losing on both ends. They overpay up front for a property that is falling in value, and that you probably can't sell for several months more, since there is 10 months of supply on the market right now. So, you're holding a house on your books, which is really a liability. What happens if there is a fire? Then the house is worth nothing. this is not a system in which a bank makes any money, but they are hoping to get more than if the homeowner walks away from the mortgage.

So, the bank, as well as the mortgage holder (many of whom are currently "upside down" on their mortgages, making it impossible to drop their liabilities by liquidating) don't want to go to foreclosure. So, like good business people, they want to have a chat and re-arrange payment. Maybe spread it out a little, lower the payment rate. Payments will be smaller, but they will still happen. The bank gets paid, nobody is turfed out of their home. But wait... it's not that easy. The bank has sold on much of this loan to someone else. That someone else will now have to receive slower payments... That someone else can now hire a lawyer and sue the bank for breaching a contract. The shareholders of the bank can go after management for "losing them money" (on money that was pretty much already lost anyway). The current procedures in place by the federal government changes the rules. It encourages these negotiations. It makes them the "norm". If someone tries to sue the bank, the bank can go to court and say "we were doing what everyone else was doing, what the government encouraged us to do. what else would you have us do?" Lawsuit evaporates (well, not quite that easy, but close), shareholders quiet down, bank can renegotiate, so people keep their houses, the bank gets paid, and things are generally better than the alternative of foreclosure. People trusted with other peoples' money must always look "prudent", after all

I agree with you Tim, and I would certainly be overstating the case to say that banks/servicers WANT want to foreclose. As I mentioned, many of the securitization agreements make it very difficult. However, up to now it would also be equally overstating the case to say that banks/servicers have historically pulled out all the stops to avoid foreclosures.

Also, the response to bankruptcy bill by the federal government and industry suggests that they are not as averse to foreclosure as they say they are. The State Banking Department wrote the following in a report on servicing of subprime loans: "Seven out of ten seriously delinquent borrowers are not on track for any loss mitigation option. The lack of interaction between mortgage servicers and homeowners remains a major problem. [T]he data shows a large gap between the number of homeowners needing loss mitigation and the number currently receiving assistance. Our data suggests
that a rising number of loan delinquencies are outpacing the increase in loss mitigation efforts."

To be fair, many homeowners simply don't know that they can modify their loans, and the report does say that servicers are getting increasing creative in reaching out to borrowers. The report also says that servicers are more willing to do long modifications, rather than short-term ones.
There is, however, a huge gap between what the banks are saying is the willingness of servicers to modify loans and what homeowners and counselors are experiencing on the ground.

The scary part is that the wave of subprime re-sets hasn't crested yet, as the Governor remarked in a press conference today (read my blog tomorrow for more details). Already in some areas, foreclosures are outstripping new sales of homes.

In other words, even if lenders/servicers did get real about avoiding foreclosures after months of prodding from legislators and advocates, it might be too late to get a handle on the wave of defaults that is about to hit. This makes Will's suggestion, "Why can't you be patient and wait for the banks to deal with this on their own?" not only naive, but dangerous.

Mark wrote: 'For the record, I have friends and family among the people who "were not smart enough" '. It really boils down to that, doesn't it?

I am always amazed at the number of people who sign legal agreements without bothering to read the fine print, or caring whether or not they understand what they've signed.

They see something. They want it. They sign. They'll worry about paying for it later.

"Caveat Emptor" has always been true.

I really have no sympathy for people who don't care enough to first read and thoroughally understand legal documents before adding their signature.

No one was holding a gun to their heads and making them buy houses they could not in the long term afford, and that's a fact.

Bottom lne - it is the personal responsibility of the BORROWER not to agree to potential payment schedules he cannot afford.

Would a bailout help "all of us"? In the short term yes - in the long term, it only validates and encourages people to believe, "Well, if I screw up, the government will bail me out." We need far less of that attitude, not more.