MOAB Revisited

A good friend pointed out that the real problem is the mortgages. Those are the things behind the dodgy assets, or most of them anyway. (The reasoning being that if you sort out the RMBS problem the CMBS will come mostly good.) So, if you are the US government and you want to spend a trillion dollars, give or take, here's what you do.

• You own a lot of the problem anyway via Freddie and Fannie. Immediately refi all current or less than 90 day delinquent ARM, hybrid ARM, and option ARM loans on the F&F books into 30 year fixed. That ensures a lot of them stay current.
  
• Modify the non-current ones into 30 year fixed on a reduced notional, and take equity in the homes as compensation for the writedown. Yes, you'll lose money on this, but not as much as you will lose if you don't do it.
  
• Offer Federal subsidies to any banks that will participate in doing the same in exchange for capital. You take the hit now, they give you ideally warrants but I can live with preference shares. Change the law so any problems which stop securitised loans being mod'ed in this way go away.