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You multiply that over and over again -- and keep in mind that a 100% loan-to-value California house is about the worst other than the piggyback loans that were made with home equity that went to 120%, but I believe in the last two years those people have already been foreclosed -- and you get a firmer market. A firmer market means house price depreciation ends. If house price depreciation ends, then if the home is sold, the mortgage gets paid back and then some. That's where the profit comes in for the government.

Now, you don't have to write these down to 50% to make this work, as you see from the math. You could do it higher.

The thing you need to know is that banks holding these mortgages are either valuing them much lower -- as in Merrill's (MER Quote) pricing to Lone Star, or the writedowns that Bank of America (BAC Quote) has taken and that Wells Fargo (WFC Quote) is taking -- or too high, a la Washington Mutual (WM Quote). Either way you could either price these so it is in the interest of an acquirer to buy WM and write the mortgages down and then sell them to the government, or have Bank of America sell them and write them up to build earnings.

Either way, the banks can loan more and get the economy's oil flowing again. They can't unless they have a market for these mortgages.

That's why this is so important.

Now, there are certainly issues. How do you keep BAC from making so much money off you and me? We can craft some sort of equity stake that the taxpayer can take. The executives' benefit? We tax it or regulate it. We need to worry about the winners later; let's worry about the loser now, which is the U.S. economy.

Oh, and let's not forget what else goes right if the plan is approved. We get a real boost to the damaged portfolios of Fannie (FNM Quote) and Freddie (FRE Quote), which we own now. The values could go up big, the foreclosures on those properties go down, and these two go profitable off their guarantee fees, which are gigantic.