Question about Bear Sterns Bail out?

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I do not know if I understand it for sure. What I think happened is that Bear Stearns through Credit default swaps agreed to guarantee mortgages. The loans were then securitized as AAA bonds because they were considered very safe. These swaps became valueless when it became clear that they were actually going to have to pay on the loans in the securities.

If that is correct, how is that better than guaranteeing the refinances of the people that will have to default on thier loans? That would lead lead to them getting thier finances at low enough rates that many would not default. Bear Stearn’s securities would become liquid, and they would not fail.

We will be happy to hear your thoughts

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