More precisely, we don't need no stinking bailout of scores of banks holding bad loans. IMHO, the government is going at this from the wrong direction. This is a top down approach, when we need a bottom up approach. And everthing is already in place for a bottom up approach...
We should not be bailing out banks who made bad loans, and in many cases, are guilty of predatory lending practices. We are, in effect, rewarding bad behavior. What we should do is force thiese banks to eliminate many of these sup-prime ARMs with a fixed rate mortgage.
Banks holding these loans should be required to offer a 4.5% 40 year fixed mortgate to replace their high interest ARMS. A 4.5% 40 year fixed mortgage costs $450 per 100K. That's a monthly payment of $900 per month on a 200K loan. For a family making around 35K a year, that's about 1/3 of their income, which once upon a time used to be the industry standard for qualifying for a loan.
But would the banks make money holding these loans? Of course they would. I have a second on my house from a loan I obtained from the Small Business Administration following the 1994 Northridge (California) earthquake. The loan was an 18 year, 3.9% loan. It has been sold multiple times to different lenders. If lenders can make money on a 3.9% short term loan, they can certainly make money on a 4.5% 40 year loan. That's 232K in interest on a 200K loan over 40 years.
So, before we take any action to bailout banks, how about we bail out the mortgage holders with reasonable fixed rate loans. And if necessary, have the SBA make these loans, they will sell them to secondary lenders, and the taxpayers will be off the hook.