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The Federal Reserve effectively buys up bad mortgage debt from banks (it has already started to do that by accepting impaired assets as collateral for loans to financial institutions). Struggling banks get cash from the government to keep them afloat.
The pros: Politicians could say they didn't bail anyone out even when they did. A cash infusion means banks could lend freely again. Mortgage rates should fall. That should bring more buyers into the market, slowing the drop in prices.
The cons: Taxpayers would foot the bill, which could run as high as $300 billion. Some borrowers could refinance, but many would lose their homes. That means more foreclosures. Real estate prices, while helped by cheaper financing, would probably still fall. But hey, score one for personal responsibility, making people bear the consequences of their mistakes - as long as they're homeowners and not financial executives.
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Last updated April 10 2008: 4:46 PM ET
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