Reward Bad Behavior

I guess we can assume all those that bought with 0% down, used a liar loan or were in HELOC Heaven can get a bonus for there troubles. Bernanke is pushing for banks to help those underwater by reducing the amount of the loans in order to "restore" some equity. Wouldn't one need some equity in the first place to restore it? So I guess this won't include all those 0% downers. We can just give more cash to the HELOCers. Yes, that will solve all the problems.

One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding deliquency and foreclosure," Bernanke said.

With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less finanical incentive to try to remain in the home, he said.

Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They said that if they were to write down the prinicipal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said.

Although this is what he said I have a feeling he really is trying to figure out how to help the lenders but make it look like he is helping the citizens. This is just more of the "privatize the profits, socialize the losses" especially when it comes to big, BIS business mentality that is so often endorsed within our economic system.