I have often commented, going back the start of The Market Ticker, that the only solution to the housing mess is for house prices to contract to, on average, three times average incomes or less.

Every program from the government - literally every one - has been aimed at preventing this.

The reason is simple: Those who funded the bubble machine would be rendered insolvent - in some cases many times over - if the truth about home values was to be recognized.

Therefore, every program has been one sort of "extend, pretend and lie" or another.  All of them.

Now we are finally getting people in the so-called "expert business" opining on what I have said since this crisis began: loan-to-value ratios are too high, and until they fall foreclosures will continue.

What regulators and lawmakers need to understand is this: Prices will fall - one way or the other.  We are only able to determine who bears the loss of making these unsound loans, not whether the losses are ultimately recognized.

Specifically, Laurie Goodman said:

Got it?

Let me make a few things clear:

• I fully understand that forcing recognition of true value in these homes - that is, principal reduction so that the outstanding amount on the loan(s) reflects market value, not the pumped bubble value, will result in huge losses and bankrupt many institutions, probably including so-called "Too Big To Fail" banks.
  
  
• However, as Laurie has said, the choice is between forced cramdowns and workouts within the current loan structures or continued foreclosures.   Both end in the same place for home values, but the latter results in larger losses, as a loss delayed is a loss that grows larger for multiple reasons.  Some of those include "homeowners" who trash their foreclosures on the way out the door, vandalism and simple rehab-and-resale expenses.

More than two years into this mess it should now be clear that the approach taken by our government has been and is bankrupt - and will not work, no matter how many different ways it is repackaged and re-sold.

These losses must be recognized and the bad debt forced from the system.  It is essential in order to return our economy to a sound and stable footing.  Those who make these loans and bought these securities either through false representations or their own lack of diligence must suffer their losses even if it bankrupts them, and if they have a claim at law to bring for fraudulent marketing or misrepresentations then let them sort it out in court - where it belongs.