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You missed an extra step on the clean up of the mortgage mess. The government gives the amount by which each homeowner is underwater or over-leveraged to the homeowner who is required in turn to pay it to the bank who reduce the balance on the mortgage accordingly.
Nov 08 14:53 pm
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All Comments by Tom Armistead »Options Trader Wrong-Way Weekly Wrap-Up: Party Like It's 1999 [View article]
But then the government requires the bank to issue it shares for the amount of money involved. At that point the bank is well-capitalized and shareholders have been insanely diluted, leaving the loss exactly where it belongs.