The Washington Post reports that the US Government is considering plans to take hundreds of billions of dollars in troubled loans out of Fannie Mae and Freddie Mac, stick them into a so-called "bad bank" and create a new structure to support the home-loan market.

That sounds fine in theory. But the problem is what to do with those toxic assets. And with the US economy still in recession, joblessness rising and defaults on home loans going up, no one knows about the size of future losses at Fannie Mae and Freddie Mac. So who is going to put money into them, even after the restructure?

The US housing market is the canary in the coal mine. The parlous state of the market tells us that the US will be in recession for some time, even if it's unofficial. Bloomberg reports that 48% of US homeowners with a mortgage are likely to owe more than their properties are worth before the housing recession end. In other words, they will be underwater, with more people losing jobs and companies going to the wall.

Solving the US housing crisis will require some radical measures. One good idea is to give homeowners facing foreclosure the right to stay in their homes, paying the market rent for a substantial period of time like, for example, seven to 10 years. That would keep them in the neighborhood and put a floor under property prices and stop them falling further. Negotiating the market rent might be an issue but it's worth exploring. Everything else seems to have failed.