Another bailout on the horizon?

Reuters is reporting on a rumored August mortgage bailout in which GSEs Fannie Mae and Freddie Mac would engage in mortgage debt forgiveness for homeowners that presently have mortgages that exceed the actual value of their homes (aka "underwater"). This could all take place without any Congressional input or oversight.

This will be framed to the American public as a bailout of Main Street, but make no mistake this is just another Wall Street bailout. Banks around the globe are heavily invested in securities that are based on these toxic assets. When the federally-backed Fannie Mae and Freddie Mac rewrite the terms of mortgages for homeowners that are underwater, the debt owed doesn't just vanish; it is paid for by US taxpayers. This will make the banks happy because they will now have investments based on assets that are appropriately priced (aka no longer worthless). To add insult to injury, it will only further encourage bad behavior as those who made poor decisions will be rewarded at the expense of those that made good choices and lived within their means. This is known as moral hazard.

More "change" we can believe in!