President Bush has acted to arrest the sense of crisis around the US housing and mortgage market. As Forbes.com reported:

For the second time in less than three months, the Bush administration signaled Wall Street that it’s willing to contain the subprime mortgage mess.

On Thursday Bush unveiled his plan to freeze “teaser rates” on some adjustable-rate mortgages, to keep 1.2 million borrowers away from foreclosure if they aren’t able to make their loan payments once the introductory rate expires. It’s a private sector plan, brokered by Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson. And since it involves no government money, it keeps the administration a step away from being accused of a bailout.

Talk about symbolic claptrap and the credulous American investor: they have fallen for a three-card trick from a US administration whose only concern is to look as though it is doing something to help as many people as possible in headline terms, but as few as possible in reality.

Wall Street rises, investors buy banks and start smiling, even though figures are released showing mortgage foreclosures are now at 20 year highs, and expected to worsen and worse still, US house prices are expected to drop 30% before the bottom of the slump is reached. US rating agencies were sceptical, although they supported the intent of the plan.

The Bush proposal came as the number of US borrowers who are behind on their mortgage payments hit a 20-year high in the third quarter. According to the US Mortgage Bankers Association the share of all home loans with payments more than 30 days late (including prime and fixed-rate loans) rose to a seasonally adjusted 5.59%, the highest since 1986. New foreclosures hit an all-time high for the second consecutive quarter in a survey that goes back to 1972.

According to the independent economic forecast arm of Moody’s rating agency, Moody’s Economy.com:

The current housing recession is expected to run through early 2009 and will ultimately be severe enough to be characterized as a housing crash. Home sales are expected to hit bottom in early 2008, declining by over 40% from their peak, housing starts will reach their nadir in mid-2008, falling by 55%, and house prices are expected to decline by 12% through early 2009.

The study said the reason for the long time to recovery was simple: too many unsold houses: “The housing market’s most fundamental problem is it is awash in unsold inventory” and that excess was the biggest since 1945!

And Bush, Paulson and their supporters expect “The Plan” to solve the problem against that backdrop?

The real winners will be the Wall Street mates of US Treasury Secretary, Hank Paulson. While the plan to help subprime borrowers is a step in the right direction, the small print makes it clear it is only a sop: only a tiny proportion of subprime borrowers will qualify.

The plan allows a five-year freeze in interest rates only for borrowers current with their monthly payments; it will streamline the mortgage modification process for many distressed borrowers, but it excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.

So that effectively rules out anyone who got into trouble and fell behind this year or in 2006, when the crisis started.

But the real crisis is on Wall Street, in the City of London, in Florida’s thousands of cities and towns: its the value of the mortgages and their associated credit derivatives that are falling, generating big losses for banks, investors and others. The bottom line is that the problem isn’t on Main Street any more, its on Wall Street and in the balance sheets of investors, promoters and inventors of these securities.

The Masters of the Universe have been shown to fools and charlatans, and that’s the Bush-Paulson plan is aimed at protecting them from retribution and responsibility.