Welcome to Communist America, where the problems of one are the problems we all share by paying for blunders of otherwise independent peoples.

SEVEN HUNDRED BILLION DOLLAR BAILOUT? WTF?

OK, so I'm not up on all of the details, but I still have opinions. The first is easy and should be obvious to everyone:

No bailout for the lenders. Do not keep bad businesses running.

So, from my pedestrian understanding, and conversationally simplified, it seems that a large number of lenders (and their insurers) have fallen on hard times, and are even approaching total failure, due to poor loan practices. Some of these practices have made headlines, and are the result of other individual irresponsibility that I have a hard time comprehending. Let me see if I can get it right and say why these companies should be allowed to fail.

So in the big lend boom of the last few years, lenders have been lending money to those not deserving, or with terms that turned unfair, or for amounts beyond the security of the assets, or combinations thereof.

It may have been that lenders were feeling generous and simply lent more than a borrower may have been able to pay back. This may have been market optimism; most people grow in their ability to repay debts, and they were crossing their fingers? So these overextended people failed to pay back their oversized loans; that's irresponsibility on both parties for both lending and borrowing more than years of experience had shown was reasonable.

It may have been that the terms of many of the Adustable Rate Mortgages led to rate spikes that caused many to not be able to afford to make payments. This also caused people to fail to pay back their loans. Sure, arguably the lenders were within their rights and probably on target with their formulas, but the more responsible thing to do would have been to reduce their rate increases, at least in some cases, or more cases than they did. The lenders of these were also irresponsible for not understanding their terms, not dealing with the rate increases (why not refinance again?), and for again not repaying their loans.

And there was the bizarre case, asI recall from the TV news, where there were people who just stopped repaying their loans because the perceived value of their homes had dropped to less than their mortgage, so they would stop paying their mortgages. What? This is total irresponsibility of the borrowers.

So these collapses in reason have caused record numbers of defaults and foreclosures. What this means is that now the lenders own a bunch of properties instead of getting the cash-flow from the payments.

The accounting nightmare this has become boggles me. It's been explained many times on the evening news, and always in a way that makes me think that there is way too much doomsaying and fear-propagation.

I know I see some of these a little too plainly, but let me see if I can scrape some sense off of this.

In each foreclosure, the loss to the lender is largely theoretical and momentary. Instead of that monthly check, which is usually mostly interest, for an extended period they now have a property. The theoretical loss here is the triple of the loan value in interest; the reality is that they now have a property worth about what the principal was. If done correctly, the property is "worth" more than the principal of the loan. This leads to the momentary loss, as now they aren't getting those payments, and won't see any opportunity for income from the property until they do something with it, which will probably be sell it.

So, in the accounting world, I'm sure, somehow the loss to the industry, and the reason for the bail-out, is that someone is pointing out the loss of the interest as a back-breaker for the business. The cash-flow loss undoubtedly hurts.

Here's my solution. I'll type slowly so that everyone understands...

Sell those foreclosed on properties for a fair market value.

Do not dump the properties, which has been the response of many lenders in the past, but hold out for a fair price in the market. Do not try to inflate prices to recoup "lost" revenues.

Heck, try to be the lender for those properties, and get back on that cash-flow wagon. With that in mind, why not spin-off a business, and lease the properties?

With that kind of thinking, the actual impact is much, much, much less than $700,000,000,000. That's a big number.

Let's toss about a situation. Fictional, and rounded for conversation.

Person buys a $100,000 home.They get generous lender, and borrow $95,000 to do so. They pay for a while, and work their principal down to $93,000. Then the market shifts or their ARM adjusts, or the realize their budget can't handle it, so they stop making payments. After awhile, they're ejected from their home, and the lender forecloses and owns it.

From what I gather on the news, it seems the general idea is that the lender then claims $300,000 is lost--roughly the interest remaining on the loan. They aren't discussing that they own a $100,000 property (or even, conversationally, a $50,000 property due to homeowner abuse, market collapse, whatever), or that the loss is less due to previously paid interest and repaid principal. Sure, their claim may be accurate and not a rounded number, and that may represent actual payments, but the idea is that the claims seem to be lost opportunity, not real loss.

The lender is actually in a position to "profit" more than $2,000 by selling the home for $100,000; that's just the principal that had been repaid in my example--there was assumed to be interest as well. I realize that's a far cry from $300,000 but it's not a real loss either. They can unload the property, make back their principal, put the money in their cash pool, and lend it again and start that cash-flow and interest earning train again.

Sure, now if that home had dropped in value to $50,000 (or they chose to dump the property), then their real loss is the $43,000 (conversationally still ignoring the assumed interest) they didn't collect from the original principal on the loan. Still a far cry from $300,000.

I'll concede in my over-simplification I've simply missed the scale. Perhaps the number of foreclosures is such that the loss is the real $43,000 in principal and not the $300,000 in interest that the news reporters are talking about. Maybe it was six times as many failures, and the accounting is factoring in the properties and paid principal and market prices.

So what?

Now the brutal part. Pay attention. This is where the Free Market system we have comes into play.

The lender has made some bad decisions or encountered some unfortunate market turns. They are now bust. They should close their doors. All of the people that work for them should realize that the risks went the wrong way, and start looking for other jobs.

Given the cycles that work in a Free Market, the business that fails now gives way for another business to step in. Maybe it's the lender's competition. Maybe it's a new lender. Maybe it's a new idea all together. We don't get to know until it happens.

It's brutal, sure, but it happens all of the time all around the country, if not around the world. Restaurants open, run, fail, and close. A new restaurant may open in its place. It may also fail. After a few failed restaurants open in a location, someone decides to open a dry cleaner or record shop or whatever there, and it thrives. The people that worked at the restaurants find other restaurant work, or learn about music.

If there's going to be any kind of bailout, it should be in the form of supporting the displaced workers for a while. Let me repeat: FOR A WHILE. Those that have been with the company long enough will certainly qualify for unemployment. This should be coming from insurance, but maybe some bailout money can be used to pad that. People (should) only get unemployment for a while as they seek other jobs, until they either get employed again or their benefits run out.

The market will take care of the business leaders of the failed companies (probably with big protective packages from the remains of the company coffers) and the irresponsible people by giving them lesser jobs or retirement.

The people that borrowed from those lenders and defaulted should already be black-marked and have difficulty borrowing. This may make their situations less happy, but that's the knock you get for messing up on a loan. This will offer some protection from such a collapse in the future.

There may be a slump. There may be a swell. There may be some that never recover.

That's the way it works, comrade.