JoefrmSeattle

Historic Financial Collapse Underway?

I know mortgage bond investors are banking on interest rates of ARMs resetting at higher rates but it seems to me this whole forclosure problem could be mitigated by the financial institutions themselves extending the terms of the loans out a few years. ARM extensions could be distributed and graduated out to minimize the risk of exposure to defaulted loans.

This action could be self regulated or government regulated. The bond investors may see lower yields, banks might make slightly less but all would continue to profit. Foreclosure rates would fall dramatically. Business models would stabalize. The government (the people) would not need to save anyone. The entire economy would recover.

Fractional reserve lending laws permit banks to loan out 10 times the value of their reserves. This means if mortgage interest rates are 6% then their actual profit is 60%. That is an extremely good return and does not include other ways they profit. This economy is being crushed by entities who are capable of fixing it with a stroke of their pen remaining extremely profitable in the process.

So why not do it. Why not extend out the terms of these loans in facing default or foreclosure because if interest rate adjustments. Auctioning homes for less than they are worth can not be good business. Being bankrupted, bought out, bailed out or federalized do not seem like a better options to me.

Please, tell me what is wrong with this solution and why no one talks about it.