Bottom-up Financial Detox

I don't understand why the government does not address the financial crisis at the root of the problem. A big part of the problem is "toxic assets" (which as far as I can tell are assets that under normal circumstances would not be called "toxic" but "worthless" -- it's just that no one can admit they're worthless yet because to do so would collapse these giant firms and a lot else besides).  These assets are worthless because they were based on unsustainable mortgages.  A lot of the problem is also lack of transparency -- nobody knows what various assets are worth, so everybody suspects everybody of being in danger of insolvency, so nobody is willing to lend to anybody, even people who may be perfectly solvent, because they aren't sure whether to believe that.

One way of addressing the root of the problem might be as follows:

Stop all foreclosures.  When someone can no longer pay their mortgage, the government begins paying it.  The homeowners (maybe that should be home "owners") get to stay in the house that they "bought."  The mortgage holder gets to continue receiving payments.  However, the government receives equity in the house proportional to the number and proportion of payments that it makes, relative to the life of the mortgage.  So if the government has to pay your mortgage for you for one year of a 30-year mortgage, it assumes 1/30th of the equity in the house.  Or perhaps that should be equity equal to 1/30th of the value of the mortgage.  Perhaps the government's contribution would be deemed to go straight toward the principal, so the mortgage holder would take a hit as well as the homeowner. 

Someone who knows a lot more than me about the realities of these things would need to work out the details, but the basic concept is:

1. Residents can stay in their homes
2. Mortgages continue to provide returns so the value of toxic assets stabilizes and becomes transparent, even if at a reduced value, and
3. The government & taxpayers gain a whole lot of equity in a whole lot of real estate, which eventually will be recouped as residents get back on their feet, real estate is sold, values recover, etc.

Whether this is feasible would depend upon the numbers.  It could be that the numbers of mortgages involved are just too towering -- but let's just pause to remember that the numbers that are being tossed around already are very large, trillions of dollars.  And under a scheme like this, the government would in theory eventually get much of its money back. It would also recoup a lot through greater tax revenues from communities and individuals who are not ruined that would otherwise be.  I haven't checked but no doubt there are other such schemes floating around the internet, but it just seems like the way to go to me.  There hasn't been enough focus on the role that lack of *transparency* is playing in the credit crisis. 

Of course by now the financial crisis has gotten much bigger than the mortgage crisis. But this kind of scheme if possible would help an awful lot of people and at the same time at least make a big start at addressing the Wall Street crisis.