A bold new plan from the federal government proposes to end the mortgage crisis and provide extra troops for the wars in Iraq and Afghanistan at the same time. Homeowners whose mortgages have reset to higher interest rates can now lower their rates by volunteering for combat duty. The rates would be lowered by a full percentage point for each year of service.
The White House admits that some thorny difficulties do remain to be worked out. Factors affecting the plan include the age and physical condition of those volunteering, and what some detractors have described as “miniscule” military pay that would be available to repay the restructured loans.
Nevertheless, the private sector seems to be enthusiastically embracing the government’s plan. New financial instruments based on years of combat service and their expected presumed reduction in the mortgage rate should provide a bottom to prices and an end to foreclosures. They will be bundled as mortgage backed securities, then structured as CDOs and made available to investors worldwide.
Government spokesperson Eva Sion decried as “appeasing the terrorists” the alarm expressed by some financial experts that this is precisely the same approach that created the credit crisis in the first place. “These financial instruments should provide stability to the market. We have shown in our financial modeling that these financial instruments will less risky than similar instruments currently on the market.” A Bloomberg reporter was then ejected from the room by security guards after asking if such “similar instruments” included bonds now selling for 5 cents on the dollar.
As for the vexing question of how to adequately prepare for the possibility that the “volunteer” soldiers might get killed or become incapacitated while in combat, the government announced a plan by the private sector to sell life insurance bonds (which of course will also be sliced and diced into CDOs.)
This could lead to the bonds being shorted, which means the investor hopes and expects some of the volunteers will be killed. In extreme cases, the investors could seek to maximize return on their investment by arming Iraqi insurgents to do just that. However the bonds themselves would remain profitable and the markets orderly – which of course remains the primary consideration.