So with this huge financial / mortgage crisis, there’s a huge “plot hole” that I’m just not understanding.  Perhaps I just don’t have all the information, but as I believe the situation to be:

• Some people over the last few years during the housing boom took out some risky mortgages using some crafty techniques like ARMS and what not.  The banks shouldn’t have loaned them the money, but they did anyway.
• Surprise!  The housing market contracts and people suddenly can’t pay those shady loans.  Whoops.
• The banks sell the “bad debt” off to securities firms who then repackage them, shuffle them around, and resell them out in the open market.
• Housing collapse continues and, the way the media has presented it, seems that every major financial institution owns some of this “bad debt”.

So here’s the part I don’t get.  Based on a quick google search, the foreclosure rate is 5.8%.  So basically 6% of people aren’t paying their mortgages.

Doesn’t that mean 94% of people ARE paying their mortgages each month?  Isn’t that a massive, immense amount of reliable, continuous, stable cash being pumped into the finance industry?

So you’re trying to tell me that the *entire* financial industry is going to “grind to a halt”, and that banks will have “no money” to make loans to people, thus sending us into some sort of death spiral (that apparently is all going to hit by next week unless we do the bailout) that will destroy the world economy?

All of that because 1 out of every 20 mortgages isn’t getting paid on time?  Seriously?

If the above truly is the case, then fuck your $700,000,000,000 bailout.  If the firms and the brokers over leveraged this bad debt and other dumb bond insurers insured it and now it is biting them in the ass, tough fucking luck.  94% of homeowners continue, each month, to pay their mortgages just fine.  “Banks” aren’t going to run out of money because they only sold off the “bad debt”, they should still keep on getting paid from their good loans, right?

I guess I’m just missing the connection between all the securities firms and brokers whining and crying saying they made really really bad bets and gambles, and that somehow translates to banks with good loans on their books not having money to loan to Joe Anybody on Main St USA trying to take out a small business loan.

I’m sure I don’t understand all of this.  But it sounds like such a damn huge SCAM is all.  Especially with quotes like this:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

(Forbes)

Ah, great.  So you don’t really know who the money is for;  You don’t know why you’re giving it to them;  But you know it has to be a lot.  Fantastic.

Maybe someone can explain to me what happened to the idea of letting companies fail when they run their companies poorly?