out of sight, out of mind.  If we just change the accounting, all our problems go away. 

Another technique of "make believe" is not foreclosing on homes; I've read stories (many) where people have been sitting in homes well over a year without making a payment and not being foreclosed on.  Because the banks only want to admit to X many losses a quarter or else they might actually look weak.  So we have this shadow inventory of defaulted homes that people are living in 'rent free!' as banks look the other way, waiting for miracle rebound I suppose.  But to come full circle to paragraph one - a very interesting tactic by Wells Fargo in dealing with the most toxic of all mortgages (option ARM) they are "transitioning" people into the second most toxic (interest only).  That's step 1.  Step 2 is for Ben Bernanke to unleashes enough paper dollars into the global economy, so as to inflate home prices back to where the home owner could actually sell the house in 5-10 years.  Or if that does not work, it will allow Wells to admit the loss in some far off year...

Obviously either of these loans are of the worst variety as they allow people with no "skin in the game" to transform from renters to "owners" but only on paper.  (Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures)  And people with no skin in the game are most apt to simply walk away...   while this conversion might forestall the eventuality, I doubt it will change it for most.   But ... anything to keep the mirage going for now.  (Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble)    Heck even the Wall Street Journal now uses "kick the can".

Via WSJ

• Wells Fargo & Co.'s strategy for modifying troubled Pick-A-Pay mortgages looks like a game of kick-the-can-down-the-road.
• The fourth-largest U.S. bank by assets holds about $107 billion in debt tied to option adjustable-rate mortgages, a relic of the U.S. housing boom that allowed borrowers to make small monthly payments in return for increasing their mortgage balance. Many such borrowers now own homes worth far less than they owe in mortgage debt, and most can't afford a full monthly payment that pays down the loan's principal.