Inspired by the discussion taking place about the current mortgage/foreclosure crisis, I pose the following question: What if we just did nothing? That's right. Nada. Zip. Zilch.

No government intervention. Stop playing the blame game...   (what does it matter?) What would happen if we just plain old sat back and let the market take care of the problem?

Oh, boy. What a concept.

Let's see. Has anyone thought about the fact that when a house goes into foreclosure something else happens BESIDES the borrower losing his home? That's right, the lender loses his shirt (read: loses money big time). Have we forgotten what the "short" in short sale refers to?

Trust me when I say, even in appreciating markets, lenders do not want to be in the business of owning and selling real estate, and lose money in a foreclosure.

Lenders, like other businesses, must quickly adopt a vastly different business model that corrects the issue or THEY ARE OUT OF BUSINESS. This is why guidelines are so tight right now that even lower interest rates have not brought the buyers back.

What about the borrower that took the loan with the "teaser" rate? He also must adapt to the reality that the investment he made in his real estate has gone sour, eliminating his ablity to refinance. He must pay the higher payment to keep his home, or face foreclosure. He, too must a adopt a new strategy to survive.

Is losing a house to foreclosure a horrible thing? Yes. But life goes on. He rents a house he can actually afford. He vows to understand the next financial contract he signs. If he had a 100% loan, and lived in the property, he didn't really lose much money (if any).

Real estate prices will spiral downward as a "do nothing" approach takes place. Lenders, borrowers, and the economy are forced to adjust. Many fewer can qualify to buy. Those that can are fearful to jump into the game. People who planned to move now cannot sell.

Real estate agents and mortgage brokers leave the business in droves to find new careers. Lenders go under. "Get Rich In Real Estate" seminars go away. Without equitylines, spending is curtailed. The entire economy must adjust to the new reality, spreading pain as the new reality trickles down.

Does any of this sound familiar?

What are we left with at the end? Could it be something clean and streamlined? Could it be something better than we had before? I say YES. And it could all happen without our government casting out a net to save us from ourselves.

Intervention in this process by the government will only prolong the healing and create a whole new set of problems. It always does. Let the dollars fall where they will, and let lessons be absorbed. We Americans are survivors and masters at adjusting to bad times.

The real estate agent and mortgage lenders left standing are the strongest and the best. The buyers who now qualify for mortgages have downpayments and documented income. "Speculation" (as a motivation to buy) has gone away, and true investors return, attracted to lower prices.

Consumers curtail spending, watch credit scores far more carefully, save money, and pay off credit cards. Equitylines are used for emergencies, simply avoided, or unavailable due to lack of equity. Designer loans are shunned. The real estate community is held to a new level of scrutiny.

There is hell to pay as prices go down, but silver linings begin to emerge.  The opportunity for homeownership is opened up to millions of first time buyers...(many people my age just assumed our kids would never own a home in California).

And slowly, as it always does in a free market economy, our dollars are naturally attracted to what is right and best for the economy. Funny how that works. It has made us the greatest economy in the world, so why should we let the politicians tamper with it?

Even putting a band aid on a wound assumes the wound will heal by itself. But I've noticed taking the band aid off and giving the wound air almost always makes the healing go faster.