FDIC boondoggle

I read this morning that the Chairman of the FDIC, Sheila Bair, is "frustrated" by the lack of support from the current administration for her proposal to have the United States guarantee troubled mortgages. Her plan is estimated to cost somewhere between $24 billion and $70 billion and involves restructuring mortgages that home "buyers" can't pay. The plan involves restructuring the troubled mortgages with the federal government guaranteeing them . Even if the plan is enacted, the default rate on the restructured mortgages is expected to exceed 30%.

This would be a really bad joke, except that it isn't a joke. Thank God the Bush administration hasn't completely taken leave of its senses (although it has come perilously close). Obviously, if this program is enacted, the federal government will have to stay on the hook for these mortgages for 15 to 30 years. All so that people can continue to live in houses they can't afford. If the mortgage lenders foreclose on these houses, they will eventually resell them to people who can actually afford to live in them. Isn't that the way it is supposed to work? Today's article in the WSJ, , validates this argument.