But what if the value of your home has dipped 40% and there is little prospect of getting that value back anytime soon? Add to that the increased importance of mobility in career advancement and I think the prospect of people walking away from their mortgages becomes much greater.

I understand why people in these types of situations feel screwed, but they brought it upon themselves. If you treat your house as an investment, then you have to accept the downside risk that your gamble, which at bottom is what an investment is, will not pay off. When it doesn't pay off, you don't get to screw everyone else over, especially the prudent folks who didn't put themselves at unnecessary risk.

Consider a person who rents an apartment, lives below his means and invests heavily in the stock market. Right now, that person would be reeling from the stock market crash, but should he get special treatment or a tax payer-subsidized soft-landing? If no, then why are the housing speculators treated different? They should not be. A house is a place to live; if you want to gamble with your place of residence, that is your business, but don't reach for my wallet when you lose your gamble.

Now the counter argument has been that letting the “bad bet” homeowners default further reduces property values and puts more of the responsible homeowners at risk.

As a fellow responsible renter, I agree with everything else you say. Prices have to fall and I have no interest in putting a floor under them. What I am interested in is measure to help the market clear (ie prices to fall) as fast as possible, and with the miniumum in collateral damage to people who didn't do anything wrong. This plan makes some moves in that direction, and some others that are bad. Rather than making some kind of sensible analysis, Will just quoted someone elses glib, thoughtless response.

It's not an unbearable crisis for homeowners. It's an unbearable crisis for politicians and bureaucrats. For government to expand they need to create new classes of dependent people. Otherwise they will not be able to cultivate votes, demand large budget increases, and funnel huge new contracts to their friends. Also in order to save the banksters from paying the consequences of their own greed and fraud, it is necessary to push larger and larger amounts of credit through the banking system. Cleaning up balance sheets and liquidating toxic assets would be a real crisis (for the banksters).

It may seem like a sensible, pragmatic solution to you, if they would only leave the markets alone and let people sort out their housing and financial problems for themselves, peacefully and without any drama. But that would be a disaster for the people who are running things. Not because they can't survive in a free market, but because they don't want to.

I also know that there are services that claim to be able to have such items removed.

Maybe somebody else knows how cheaply, easily and reliably this can be done.

In any case, there's a cost worth weighing in the calculation.

How much of your money would be better spent subsidizing trouble mortgages than anything else you can think of doing with it?

For me, it's $0.

If it's more than that for you, then maybe you should write a check.

There are lots of projects that have some value, and it's tempting to spend other people's money (along with a little of your own) on it. But, I think it's almost always better (practically and morally) to have a policy of not doing that.