His plan would give the treasury secretary unprecedented power to buy up to $700 billion in bad loans with virtually no oversight and resell them at a discount.
But other financial experts say that other rescues might work better while putting taxpayers at less risk. Here are some other ideas, courtesy The Washington Post:
- The government could offer loans to ailing banks which could use their mortgage-backed debt as collateral. If the banks proceed and get into trouble, then the government could consider propping the banks up.
- The government could set up something like a hedge fund that limits its purchases to mortgage securities that are profitable. This wouldn't resolve all the bad mortgages, but taxpayers would have better chance of getting their money back.
- The government could set up programs to reduce the amounts of principal that homeowners owe. The government could buy loans and then restructure them to involve mortgage payments that are more reasonable, allowing more mortgage holders to make good on their loans. If a homeowner gets federal help and later sells his house, he could pay some money back.
- Repealing capital gains taxes for two years and suspending the "market to market" accounting for five years. This method of accounting that has come into vogue over the past decade has been blamed for some of the current problems because it forces financial firms to constantly reassess their loans and often mark down their value according to market trends.
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