McCain Clarifies Plan: Wants to Give Money Away For No Reason
I’ve blogged a couple of times in favor of government action to rewrite the terms of mortgages to avoid mass foreclosures, enormous inconvenience for everyone, and a housing slump that winds up overshooting on the downside. Based on what John McCain said last night, it sounded to me like he was proposing the sort of thing CAP’s been pushing for.
Brad DeLong observes that McCain has now refined his position to something much less reasonable. Instead of simply taking action to force a rewrite of mortgages as part of the existing planned bailout of insolvent institutions, McCain wants us to take the additional step of buying mortgages at full face value and then having the government renegotiate the terms. As far as the words you use to describe the plans, this is pretty similar to the CAP idea. But in terms of its actual impact it’s quite different. Instead of having the lenders take a haircut in order to avoid mass foreclosures, McCain wants the taxpayers to bear all the costs of doing so. There’s just no reason to do it this way other than as a favor to the executives and shareholders of firms that made or bought bad loans.
35 Responses to “McCain Clarifies Plan: Wants to Give Money Away For No Reason”
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October 8th, 2008 at 2:17 pm
Well, McCain has admitted he doesn’t understand economics, so it is no surprise he doesn’t understand moral hazards.
October 8th, 2008 at 2:21 pm
How exactly does this plan fit in with the “spending freeze” McCain was talking about the other week?
October 8th, 2008 at 2:23 pm
I know pointing out Matt’s typos is a waste of time, but “McCain wants the taxpayers to bare all the costs of doing so” is just too silly for words.
October 8th, 2008 at 2:25 pm
McCain’s plan: D’oh!
October 8th, 2008 at 2:28 pm
I know pointing out Matt’s typos is a waste of time, but “McCain wants the taxpayers to bare all the costs of doing so” is just too silly for words.
I ass-umed Matt meant that the taxpayers will be expected to bend over and bare it. Which seems a fair ass-essment of the situation.
October 8th, 2008 at 2:30 pm
Yes, Matt, that’s what I said in response to your last post. Give your commenters some credit, eh?
PS – I don’t suppose there’s much point in making a joke about “bare,” is there? The bare taxpayers? Taxpayers going bare? There should be something mildly risque in there somewhere but I’m too much of a prude to find it.
October 8th, 2008 at 2:35 pm
To be fair to McCain, I’m sure he doesn’t really understand the implications of what he’s proposing. He just came up with something that sounded good to him while in the middle of the debate (of course recall that his advisors and surrogates had no warning of this “plan” whatsoever), and since people seem to really be concerned about the economy these days he’s going to push his plan rhetorically as far as he can since surely most people won’t understand the underlying economics much better than he does.
Or more to the point, as the narcissist he is, he’ll just assume that eventually it will turn out to be a good idea, just like the surge turned out to be a good idea and the Palin pick turned out to be a good idea.
October 8th, 2008 at 2:37 pm
There’s just no reason to do it this way other than as a favor to the executives and shareholders of firms that made or bought bad loans.
Step 3: Profit!
max
['Taxpayers bare sans underwear.']
October 8th, 2008 at 2:37 pm
And of course, he wants to do it all without raising anyone’s taxes!
Which always sounds to me like a magician trying to get the table cloth off a table without knocking over the vase.
The stupid/scary part is that people buy this shit. “Common folk” and “Joe Sixpacks” sit there and say “well, McCain wants to stop government spending and reign in government waste, and he also wants to buy up a ton of bad mortgages at face value which will help the housing crisis” without seeing the utter contradiction of those two ideas.
October 8th, 2008 at 2:58 pm
There’s just no reason to do it this way other than as a favor to the executives and shareholders of firms that made or bought bad loans.
This is wrong. Basically, the idea that government give money to (publicly owned for the most part) private sector financial institutions is at the heart of the bailout proposal. Note I say “give money” and not “invest” or some other euphemism because I don’t think the stuff that’s going to get bought is actually worth anywhere near face value. But that’s another subject, and the particulars of how the money’s getting spent is obviously still undetermined (or at least nonpublic).
W/r/t McCain’s proposal that the government absorb the difference between the current principal balance of these mortgages and the adjusted (lower) balance: the benefit of doing this is that it doesn’t hurt the banks’ balance sheets! This is important not just for bank executives (I don’t know why even smart liberals can’t get past the evil executive issue) but for the general health of the financial system, avoidance of markdowns and further deleveraging, etc. etc.
So if you think banks should have to take more of the burden than homeowners, fine, but the premise of the bailout was that Uncle Sam had to take the burden from the banks, so why wouldn’t that continue?
October 8th, 2008 at 3:03 pm
Put more simply, we didn’t give all that money to the banks just to turn around now (when the crisis is clearly still very much in full swing) and just insist that they forgive huge chunks of mortgage debt.
October 8th, 2008 at 3:08 pm
How exactly does this plan fit in with the “spending freeze” McCain was talking about the other week?
I wish Obama had asked that about this and every other initiative McCain proposed last night. McCain’s “ideas” are completely contradictory and incoherent. Barack should have called him on it. I hope he will in the last debate.
October 8th, 2008 at 3:19 pm
Hmmm…$3 million overhead projector in Chicago = bad
$300 million giveaway to homeowners = fiscal discipline!
October 8th, 2008 at 4:54 pm
“but the premise of the bailout was that Uncle Sam had to take the burden from the banks,”
False. The premise is that the government is going to make a market in an illiquid class of securities. These securities have real value and the government is going to try to pay what they are worth, no more. If it gets the numbers right, the bailout will pay for itself. That was the premise. Not that we’re giving bankers a reward equal to 1/4th the federal budget for fucking up. You may believe that the “premise” is foolish or even a lie, but don’t argue that the bailout was premised on a straight-out givaway.
October 8th, 2008 at 6:08 pm
The premise is that the government is going to make a market in an illiquid class of securities.
Fine. Call it what you want, but the fact is the reason the government decided to “make a market” is because banks were/are in a world of trouble. That trouble gets exacerbated if you do the McCain plan with the banks out of pocket for the renegotiated mortgages instead of the government.
October 8th, 2008 at 8:28 pm
Ummm… if the government “buys” a bunch of mortgages, who, then, will have title to the mortgaged home? The occupant? The government? All of us?
And, what happens if the “new” mortgage can’t be “re-negotiated” to a mutually exclusive position (especially since buying mortgages at “full face value,” that is at the currently-inflated prices, will leave many distressed homeowners in the position of being asked to buy a house that they still cannot afford)?
Another question: a plurality of these mortgage defaults are for “investment properties.” If the owners couldn’t sell before, what makes anyone think that the owners will be able to sell just because “the government” has assumed the mortgage?
October 9th, 2008 at 1:01 am
A number of people continue to miss the point, especially Jabari. Did you just fly here in a time machine from September 1, 2008? Your government is ALREADY planning to buy some mortgages that no other institution will buy, at prices between face value and what you would have to price them at generate some free-market demand for them. It was discussed and voted on last week. The president is for it, the leaders of the Fed and Treasury are for it, both presidential candidates are for it, and a vast majority of significant members of both parties in the House and Senate voted for it (though it only passed the House narrowly). It will happen. The debate is over. Move on to the next topic.
The next topic is: precisely how much will the government pay for the mortgagers in question and what will it do with them once it buys them. Renegotiate? Foreclose? Hold to maturity? Hold for a time and attempt to re-sell? If the government renegotiates, the homeowner retains title. If the government forecloses, the government takes title. This is pretty easy to understand. The choice is hard and important.
October 9th, 2008 at 10:18 am
I just want to know why no one talks about PMI insurance. Why hasn’t it helped any one. You pay for it every month $20 to 100 extra.
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