Postpone But Don't Forget

Mish demolishes the OTS's suggested "home value deficit" warrants.

We would add that there could be a public-bailout variation of these, whereby the homeowner doesn't accept the warrant; the government does, as the bailout entity in-interest. This would be akin to some warrants issued in the S&L crisis; the hope being that when values come back, the government will reverse much of the outlay it put up to effect the bailout initially.

In specific cases, this does sometimes work. But as in any bubble, valuations will never come back high enough to bring the warrants up to par value, so the taxpayer would end up paying interest on that bailout indefinitely. Basically, all this sort of vehicle brings about is smoothing of over-correction of the market (collapse to below "true" values).

Still, like most of the other "bailout" proposals, we expect this to be almost completely unworkable, or at least irrelevant.