The current solutions to the debt crisis seem to involve either extending more credit or moving bad debt onto someone else’s balance sheet. Cynical bloggers refer to this strategy as “extend and pretend.” Clearly, this is not a sustainable system. Another round of tequila may delay a headache, but will not lead to sobriety.
In this case, it looks like the Fed might be buying the “bad stuff” and replacing it with real money that they printed. This expands their balance sheet. The Fed can absorb the losses from the mortgages, because they can print whatever money they need.
Everyone wins, right?