When someone loans money, they expect to be repaid. Usually, if the borrower can’t repay, he loses the house. Paulson is trying to change this rule…at least temporarily. This means the loaner will take a hit. I expect the guv to help out the lenders, meaning the banks, somewhere down the line. They are already creating liquidity with the Fed, which hurts taxpayers in the form of inflation.

This fix only delays the inevitable anyway. Most of these subprime borrowers could barely afford the teaser payments. They won’t be able to afford the full payment even if this is delayed a couple years or so.

All this will do is delay the inevitable. The people who got these exploding subprime ARMs bought too much house. They could barely afford the teaser payments. Their income is not going to go up enough to afford these mortgages even with a couple extra years of the teaser rate.

Someone has to take a loss here. When someone loans money, they expect to get repaid. So either the borrower takes a hit and loses his home, or the investor gets hurt with lower payments. Somewhere the taxpayer will end up paying whether it is bailing out the mortgages or the banks who own/created the CDOs.

Sure, I wish I’d had the foresight to buy a home I couldn’t afford so that I could take advantage of this, but I’m pretty sure my risk assessment is better than that of the people who will benefit from this, and I’ll come out ahead in the end.