I've been trying to get my head round the solution they're putting together, and thankfully they're not going to use the same approach they did with Savings & Loans (the RTC thing). It seems they're going to set up a government agency, a lot quicker to do than a corp, buy the debts from the banks at a discount and then auction them back to the market later. As its a govt agency this also allows a lot of leeway as to how it functions legally.

Sooo... until we see how the auction happens, at an as yet unspecified date, and the rules applied to the auction (how much debt can you buy and how you can claim back more than you paid for said debt from whatever financial institution it represents) blah, blah, we're not going to know how it all pans out.

This does however get the illiquid shite off the balance sheets of the banks which may, may, mean they start lending again, more importantly providing decent mortgages. So, the auction is going to happen once the housing market bottoms out, or maybe when it starts climbing again.

The instinct to say that the housing market will not reach the prices it did before this nightmare is pretty strong. But we said that after the last housing market collapse in the eighties, and it did, in fact it climbed a shitload higher. Also during that peak in the eighties interest rates were silly high, maybe once it climbs again this time they'll ramp up interest rates to keep it more sensible. Also, I still reckon some major changes in regulation are on the way, not just in terms of how credit is traded but investment banking in general.

Edit : I wouldnt be surprised if the auction includes some sort of deal for banks to buy their own debts back rather than being held hostage to a third party owning them.