My own bail-out Plan, yeah the government called for advice.
OK, first the objectives...
1) Make sure this doesn't happen again.
2) Stop the foreclosures.
3) Reward good banking practices and punish bad ones.
4) Restore investor confidence.
5) Make money for the taxpayers instead of waste money.
Now the plan...
1) First announce that the total money set aside is... (insert Dr Evil voice here while placing pinky finger in mouth.) 1 Trillion Dollars!
2) Get together all the billionare private equity investors that you can and get them to commit another trillion dollars for an opportunity to make big money.
3) As soon as you get the private equity in place, discretely invest 500 bil in commodities. Inform the private equity guys what you did once it has been completed, but advise them to keep quiet if they want to make any money. Notice I didn't say put it all in gold, You want to hedge inflation, not trigger more deflation. Actually a little more of an investment in US oil, may have secondary benefits.
4) Make the financials wanting help dance! Take a 1/3 investment to 2/3rd private equity stake in each investment and pick and choose from the 30 yr fixed mortgages first. Cherry pick the best of the garbage in the worst foreclosure markets and make the underwriters compete for investment money in a reverse auction. Make the guys that need the help the most (the guys that did the most evil) take the least in order to survive. Above all, listen to the private equity! They will help the government steer clear of bad investments. Also make sure that you can replace management of any company seeking help. The private equity guys can supply you with more people than you need to replace management.
5) Inform anyone with complex debt instruments that you are only buying individual mortgages, so if they want help, they have to convert.
6) Once you have mortgages in hand, you have to do everything you can to help the borrower pay his mortgage. First forget about the collateral. The loan is already out there. Treat any borrower as if he's current and extend the time of the loan as needed. Also lower his interest rate to something comparable to the best credit groups. Explain to the borrower that he can keep this sweet deal as long as he's not even 1 day late on the mortgage. Given the rates that most of these borrowers are paying, he has a significant incentive to make that loan look good.
7) Sell the first batch of loans, rinse and repeat. Make a hefty profit from a formally worthless loan with a now decent payment history.
8) With any luck you now have more money than what you started with and so do your private equity partners. You should be able to bail out all of the 30 year fixed stuff, and about 70% of the ARM's, about 45% of the Jumbo's and about 20% of the HELOCS. The market will make a significant improvement if you can improve just the 30 year fixed stuff though.
9) Sell the commodities only if something goes wrong.
10) If you have money left over after we recovery, spend it all and even more if needed on teaching financial literacy.