Renegotiate, yes. But with whom?

I've ranted before about what an ideal bailout plan would have looked like:
What you need is for the government to get warrants in the companies going bust and allow bankruptcy judges to reset mortgage rates.  
The bailout bill that passed did have the provision for warrants. But no provision for renegotiating mortgages.

So, I perked up when NPR played a snippet of McCain saying (I didn't watch the debate; no TV in our house until the kids go to bed):
I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes.
Hey, John McCain, the mortgage companies should bear the losses because of their bad loans. Not the taxpayer!  They should renegotiate directly with their clients.

Assume McCain knows what he is talking about. Suppose the federal government were to buy off all the non-performing loans from mortgage companies.  How much would that be? There is $1.3 trillion in sub-prime mortgages around.  Assume 50% of them have to be bought out and that the tax payer takes a 30% loss on each loan.  That's a $200 billion tax hike right there.  Unlike the $700 billion bailout, this is actually a loss.  It's not an investment that may pay off (in Sweden, the warrants the government got rose in value so that the government broke even on the deal -- this is why economists were all clamoring that the government should get an equity stake in the form of warrants).

$200 billion dollars.  Vote responsibly.

UPDATE:  See also Brad DeLong.  Apparently, it would be "only" $100 billion dollars, not $200 billion.  I guess only 25% of mortgages are in arrears.

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