We own land! Give us money!

From yesterday's FT:

William Dudley, president of the Federal Reserve Bank of New York, said on Friday that taxpayers and mortgage bond investors (1) should shoulder the cost of reducing borrowers’ loan principal. Sarah Bloom Raskin, a member of the Fed’s board of governors, added on Saturday that forcing leading banks to cut mortgage principal (2) as a penalty for poor practices was an option “that should stay on the table”...

“Housing markets have shown little sign of improvement so far in this recovery,” Elizabeth Duke, one of the Fed’s five sitting governors, said last week. “This stands in sharp contrast to the important role that the housing sector has typically played in propelling economic recoveries.” (3)

Mr Dudley detailed about half-a-dozen proposals to revive the US property market in a recent speech, including principal reduction for borrowers, eased refinancing terms for homeowners who owe more on their housing debt than their homes are worth, and a US taxpayer-funded programme to extend financing to unemployed borrowers. (4)

The New York Fed chief, who acts as the Fed’s liaison with Wall Street, added that US-controlled mortgage giants Fannie Mae and Freddie Mac, which own or guarantee nearly half of all US single-family mortgage debt, should reduce borrowers’ loan balances to help stem the rising tide of property repossessions. (5)

1) Mortgage bond investors I understand, but "taxpayers"?

2) Ooh! Making the banks take their own medicine? Sounds radical!

3) Nope. Growing economies inevitably cause house prices to rise; and rising house prices create bubbles which create the illusion of growth while stifling real growth, only nobody notices until the bubbles burst, when the real economy gets burdened even more to bail out the illusory economy.

4) Do they have to be wearing string vests?

5) Aha! They aren't going to take the radical step of making commercial banks suck up the losses, it'll be the taxpayer-backed banks doing that. So point (2) goes out the window and (1) really means that the losses/subsidies will be shared between taxpayers and, er, taxpayers.