You are correct in that the value of the home has no effect on the lender’s liquidity once the home sale has already gone through. I didn’t say that it did. What I said was that purchasing the mortgage increases the liquidity, which is a true statement. Those banks now have more cash on hand to lend since one of their assets (the home) has been made liquid (cash). That’s simple enough.
I didn’t disagree that giving money to people or organizations increases liquidity. I am only pointing out that this approach has nothing to do with the current “liquidity problem” that some lenders may have. (Nor, it may be worth pointing out, is that what McCain suggested it was meant to do.) It is a government handout that will, by design, pervert markets (in many ways) without addressing any real problems, and it will vastly expand government. I think it is a really bad idea.