Pity Mr. William Frey. Joe Nocera tells us Frey,

… a broker-dealer in Greenwich, Conn., invested in a pool of toxic mortgages, along with hundreds of other investors. His big point is that because the contracts are so ironclad, and the interests of the various investors are diverse and often in conflict, there is no legal way to modify mortgages in those pools. He wrote a letter threatening to take action against any mortgage servicers who took steps to prevent foreclosures….

The pity is that Mr. Frey, for all that he has enough money to live in Greenwich, has never heard of the Bankruptcy Code, that devilish invention used by other wealthy people to modify all kinds of debt instruments in Chapter 11 cases.

For the pathetic Mr. Frey, the only plausible solution is

… the government would buy mortgages at face value, and then use Fannie and Freddie to write homeowners new, more affordable mortgages that reflected the current value of the homes. The government would have to absorb the difference between the original mortgages and the new ones.

Who is this "government"? That’s right, he means the only possible solution is for you and me to pay. Investors aren’t going to agree to take any losses, and will sue anyone who tries to force the losses onto them. And they have Contracts! And Ironclad Legal Rights! So they have to get their money.

Mr. Frey acknowledged that it wasn’t fair that both borrower and lender were made whole, while the taxpayer had to take the loss. But he believes that the securitization contracts make it impossible to solve the problem any other way. “Theoretically, morally and logically, the investor should absorb the loss,” he said. “But how do you get the loss to them? I don’t see a way.”

See? Don’t you understand? There is no way losses can be put off on investors. Sad, isn’t it? The rich can’t lose money on risky investments. Especially when they have iron-clad contracts. All they have to do is sit tight, and sue anyone who modifies their mortgages.

Then what will happen? Homeowners will continue to default, the glut of foreclosed houses will keep the housing market on its downward spiral, and eventually, after enough mortgages go into foreclosure, Mr. Frey’s pot will have a few scraps in it. And that is his big threat?

I just wish someone could educate the ignorant Mr. Frey about bankruptcy. Or maybe someone could explain the result of continued foreclosures, which the thoughtless Mr. Frey hasn’t considered. Who knows, maybe Barney Frank will explain things to him when Mr. Frey appears before the House Financial Services Subcommittee in the near future. It’s a bad idea to act stupid around Mr. Frank, a man not known for treating people nicely when they ought to know better.