I keep seeing this theory popping up time and again, but I think even the experts are missing the point here:

“I would think that what’s occurring is that those houses [Foreclosures] come back on the market, they push the prices down, you get the negative equity increasing, so you get more foreclosures. So you get somewhat in a vicious cycle, and that’s the reason why I think that you’ve got to get some sort of intervention to stop it.”

It is my belief that messing with the terms of the mortgages makes bondholders more nervous-making them less likely to buy more bonds going forward.

It is the massive inventory [Remember supply and demand?] that is causing the problem- more so than foreclosures. In spite of that fact, we don’t hear is “We have a huge supply of houses out there, and it is this massive inventory that is driving down prices.” Until we figure out how to sell the inventory off, prices will continue to decline.

I believe that this obsession with keeping folks chained to an overpriced asset is detrimental not only to them, but to the market as a whole.

There are those who claim that show this as a failure of the free market. How would we know, we haven’t seen one in years. Greenspan’s tinkering set off the problem, and now we are wasting trillions trying to defy gravity.