I've been reading a lot on the bailout lately, and it still amazes me how off the mark all the pundits seem to be - on both sides of the political divide. Those on the left say the mortgage lenders have to "take a haircut" and write down the principal. Some on the right - McCain in the forefront - just want the government to buy up the loans at 100% value, on the premise that the mortgage companies are in bad enough shape as it is.

Let's examine the amount of this supposed "haircut". Assume that the bulk of these bad loans have had only 2 years of payments on them before they went bad - that seems like a reasonable guess given how long this crisis has been in the making. Assume further that the average of these mortgages is $85,000 for 30 years at 8.5% yielding a monthly payment of $654. In the first 2 years of a mortgage, especially a higher interest rate one like most of the ones that are in default, about 98% of the payment is interest, that's $641/month of that $654. Multiply that by 24 months and you get $15,384 of pure interest payments.

The bailout bill analysts say that mortgage companies should write down the principals to about 90% of their value. For our example $85,000 loan, that writes down the principal to about $76,500, a reduction of $8,500. THE MORTAGE COMPANIES HAVE ALREADY MADE MORE THAN THAT!

So where exactly is this economy-ending financial haircut McCain is so afraid of?