If you cause Bob's house to go back to being $200k then it only screws the Bobs. It doesn't screw the Mary's who bought at or below $200k. Your logic is what gets us into these messes, because it removes moral hazard by telling speculators that housing is special and therefore immune to risk.

Of course it's not a free market. Has America ever had a free market? When is the last time that the real estate market hasn't been manipulated in some way?