Injecting billions of dollars to help the financial organizations who participated in causing the disaster will not, and has not, worked and will reward them.
I suggest the following steps:
1. Freeze the increases in subprime mortgages.
2. Reset the interest rate on sub prime mortgages to the prime rate at the time of the mortgages or at the current prime rate, depending upon which is lower. This will stop foreclosures, and the value of the mortgages will recover to reasonable values.
3. Those who can not afford the mortgages reset to prime rate will lose houses that they should not have had in the first place, and will be back to the start. They might be offered a mortgage at a reduced rate, but for a longer time. The government might subsidize the reduced value of this mortgage.
Those who invested in sub prime mortgages expecting large profits may take a loss but less than for a default.
There will be less of the foreclosed, empty, damaged houses on the market depressing the value of other houses.
The liquidity and value of financial assets can be restored without rewarding those who participated in this foolish and unfair exercise in sub prime mortgages.
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