I'm not sure if folks appreciate one of the paradoxes of this bailout - the fact that, by and large, financial institutions do not want to participate in the bailout!  Instead, they want to get away with being free riders on someone else's participation.  People joke about Paulson's plan being socialism, but it's actually passive-aggressive free market stuff in my book.  What you need to do in a crisis is tell these financial institutions that we are going to take stuff from them for the common good, to coin a phrase.  Otherwise we all sink together.

Concrete example: let's assume a bunch of banks hold a bunch of impaired mortgage-backed securities.  Based on the actual value of the underlying mortgages, these securities ought to be worth 70 cents on the dollar.  But because the market is frozen up and no one wants to trade this stuff, the only way the banks can unload it is at a fire-sale price of 30 cents on the dollar.  (Thus, if mark-to-market rules apply, the banks have to value all the securities at 30 cents for balance-sheet purposes, meaning suddenly they're undercapitalized and may fail.)

So let's assume the government comes along and says hey, we'll give you 50 cents on the dollar for those securities.  Sounds like a great deal, right, because it's a lot better than the 30 cents they could get from any other buyer.  But the banks get greedy and start thinking, "Hey, if the government buys up a lot of these securities from other folks and gets the market going again, we can do better than 50 cents on the dollar.  Once the market is liquid we ought to be able to get the full 70 cents we deserve based on the underlying value of the securities."  So as a result, no one wants to participate in the Treasury program and sell their securities for 50 cents.  They all want someone ELSE to do it so they can sell their securities for even more down the road!

Now, if only Obama would come out with a better plan than "... [1] encourage [2]Treasury to [3] study the [4] option of buying individual mortgages like we did successfully in the 1930s...." (that being HOLC, though he doesn't mention the acronym.

"With the economy on the downturn and retired and older citizens and workers losing their incomes, what's the fastest, most positive solution to bail these people out of the economic ruin?"

Obama took the occasion to point out the deficiencies in Bush's failed economic policies and of course tied McCain to it as well. But, in my opinion, he did not respond the questioner's needs.
He mentioned more oversight. Cracking down on CEOs. Tax cuts
for the middle-class. Fixing the health care system. All well and good - and highly iffy.

McCain said, "... I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes". "...until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy."

I have not had my home taken away because of the predatory lending practices of corrupt financial institutions. But if I were, if I were the questioner, I would be much more encouraged by McCain's answer because it had some specificity to it.

Part of the issue is, he can't tell who's a rent-paying tenant whose landlord has not paid the mortgage, and who isn't.  And, I suppose, it's not his job to do so.

The government should buy the loans at some formulaic rate which takes into account current, future, and past market conditions.  And some provision may need to be made in case the homes so taken over either fall more or increase substantially in value (that is, if some of the homes sell after six months for considerably more than what the government paid to take them over it's probably true that some of the profit should go to the government and not the homeowner).

Basically, as I understand it, McCain would agree to overpay for the individual mortgages, which would give the taxpayers the losses and the banks the gains.  The only potential improvement over the current crappy plan is that some might get to stay in their homes if the government were willing to renegotiate their loans.  

As it now stands, the bailout bill overpays for the combined mortgages, called "troubled assets" and so also moves the losses from the banks to the taxpayers.  Only unlike the McCain plan, it doesn't have anything that might help some people stay in their homes.

Both suck, but I don't understand why so many like Delong, think McCain's plan is so much worse than what we're already stuck with.  It seems essentially the same.  And Obama supports the current crappy plan which has the same flaws he is already denouncing in the McCain plan.  

Basically, neither candidate has endorsed HOLC.  Both have advocated for plans that are nothing but giveaways to Wall Street at tax payer expense.

For those that cannot make payments, mortgages must be restructured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they've already suffered.

From my reading the burden shifting Holz-Eakins is talking about is the difference between the Hope for Homeowners Plan and McCain's plan.

In the Hope plan, mortgages would be purchase at 90% of market value, then refinanced for homeowners at 100% of market value with the government benefiting on that 10% difference.

In McCain's plan, the lenders are paid 100% of market value, and the loans are refinanced at 100% of market value.  The lenders don't take as much of a hit as they do in the Hope plan, but they still take a hit between the original value of the mortgage and the current market value.

I don't think he's arguing that the lenders should be paid the full value of the original mortgage.